How to Use RFM Model for Customer Segmentation

I’ve been working on using RFM (Recency, Frequency, Monetary) model to segment customers in Klaviyo. Today I’ll share the details so that you can do it yourself.

What it is:

RFM segmentation is a core tactic to break down your email list based on recipients’ past behaviors. This strategic approach to segmentation increases response rates and converts more sales, with the goal of moving customers up the purchase chain.

Step 1:

Determine your RFM criteria, including average order value and units per transaction/purchase. You can follow what I did below.

Step 2: Go to Klaviyo and start segmenting your customers based on the above RFM criteria.

Note that not all people who have bought from you are always your email subscribers. So when doing this, you might want to focus only on purchasers you can send emails to (a.k.a. those who have subscribed to your mailing list) for future retargeting purposes.

I call this segment “Master Subscribers.” Here are its definitions:

• Person is not suppressed for email

• Accepts Marketing is true

• OR Subscribed to List at least once over all time

• OR Filled Out Lead Ad at least once over all time

You can convert this segment into a list to make it easier to include it in other segments.

For example:

Customers purchased — over all time

• Placed Order at least once over all time

• Is in Master Subscribers List

Customers purchased - over all time - single cart - high value

• Placed Order equal 1 over all time

• Average Order Value is at least 60

• Is in Master Subscribers List

Continue to do this, and you can create charts like mine below.

These charts will show you:

• the gap between the number of customers who made one purchase vs. multiple purchases over a specific period > how can you shorten this gap?

• the gap between high value carts and low value carts > opportunities to upsell/cross-sell

• the number of people who haven’t bought from you but have been highly engaged with your emails > identify the reasons and tailor the messaging and offers to convert them.

• and so many more.

This RFM model for segmentation helps you better understand your customers’ behaviors and identify where you should put more focus. The insights are especially gold when you plan your email marketing activities for the upcoming holiday sale season.

Let me know how it goes for you ;) Love to see what you’ll create.