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Exclusive: RFM Analysis: the Best-Kept Secret for B2B Product Sellers

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RFM Analysis: the Best-Kept Secret for B2B Product Sellers

#RFM #Analysis #BestKept #Secret #B2B #Product #Sellers

Do you sell physical products to other businesses? Recency, frequency, and monetary value (RFM) analysis is a technique used by businesses worldwide, and it is an incredibly useful strategy for growing B2B wholesalers and distributors. 

Knowing how to calculate it across your entire customer base and how to action RFM insights can be tricky, particularly for smaller businesses. Yet, for product sellers, repeat orders are essential to profitable success.

In this article, we explain what RFM is and why you should care, how to calculate it, and how you can use RFM insights to create predictable, repeatable, and scalable success in your product business.

What is RFM analysis?

Before we jump into the specifics, let’s take a moment to understand what RFM is. Then, we’ll return to the most important question: How can you use this data to speed up your funnel and flywheel and drive growth in a B2B wholesale and distribution business? 

RFM is an industry strategy for segmenting customers using data you already have. This analysis technique assesses customer spend patterns across three areas: recency, frequency, and monetary value.

It’s well-used by big companies but often ignored by SMEs. Smaller companies typically have the necessary data, but understanding and calculating RFM seems complex and daunting. It doesn’t need to be! The principles are logical and easy to understand, and modern technology makes the calculation significantly more approachable for SMEs on tighter budgets because hiring expensive consultants or data analysts is no longer required.

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Why do you need RFM analysis?

Simply put, RFM is the number one strategy for wholesalers and distributors. But what do we mean by that? 

Everyone wants a repeatable and predictable way to grow their business, and to do that, you’d need to be a mind reader and know exactly what each customer wants from you at every stage. Well, that’s kind of what RFM is. 

But, before we get into that, let’s tackle a bit of modern sales and marketing theory first. 

The funnel vs. flywheel debate

There’s a seemingly endless debate between the funnel and flywheel. In truth, both models are right to an extent.

Source: Hubspot

Sure, you need to bring in new customers; lead generation is, of course, a primary focus for sales and marketing (the funnel). But, for wholesale and distribution businesses especially, repeat orders and returning customers are key to profitability and predictable growth (the flywheel). Customer success is key. Put bluntly, when repeat orders are your bread and butter, you can’t afford to have a leaky bucket!

So, successful wholesale and distribution businesses adopt a growth playbook that combines the funnel and the flywheel to maximize sales and customer engagement.

funnel and flywheel for wholesale distributionSource: ProspectSoft

In any business, you want to encourage the flow of new customers coming in, which means attracting the right kind of quality leads that fit your ideal customer profile (ICP). Then, you need to nurture your leads through the sale and increase your close rate.

Doing these three things well will generate more new customers for your business – which is great! But, in wholesale and distribution, even more than other types of B2B sales, it’s critical to successfully onboard customers, increase their average order value and average order frequency, and retain them for longer to maximize customer lifetime value ( CLTV). In other words, shift your focus to existing customers to boost your profits.  

Let’s take a few simple examples that we can all recognize. Distributing coffee beans to coffee shops, bikes to bike shops, packaging to takeaways, or food to delicatessens and restaurants. Whatever you’re selling, the first sale to a customer is rarely profitable on its own. The profit is in the long-term relationship and the repeated supply of goods over time.

So, to create predictable and repeatable growth, we need to get the first three or four orders from the customer so they see you as their go-to supplier. In other words, onboard this customer. Then ensure that we retain them for the long term, upsell them, and reactivate them if they start declining or churning as customers. But what’s all this got to do with RFM analysis? 

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If you want to successfully grow and be profitable, you need to know precisely which customers are where in your funnel and your flywheel, how to target each customer appropriately, and what to say to them at each stage in the process – fast and at scale. So whether you’re talking about mass marketing or account management, RFM analysis will allow you to successfully target the right customer, at the right time, with the right message.

How to calculate RFM

Your entire customer base is effectively assessed across three dimensions like this:

  1. Recency: A score of how recently they bought from you, usually expressed as a ranking score of 1-3 or 1-5.
  2. Frequency: A score of how frequently they buy from you, usually over the last 1 or 2 years, again expressed as a ranking score of 1-3 or 1-5.
  3. Monetary value: How much they’ve spent with you in total over that period, again ranked 1-3 or 1-5. 

But what do we mean by ranked 1-3 or 1-5? How do you calculate that ranking? 

First, you analyze the customers you’ve got and work out sensible ranges for recency, frequency, and monetary value. Then, you split that into three or five equal buckets – either equal in size or range of values, but it often works better if the buckets are an equal distribution of customers. You can then put each customer into one of those buckets and give them a score.

RFM score

Source: ProspectSoft

Here, you can see a range of values for recency, frequency, and monetary value. As an example, using the chart above we could allocate our customers’ recency score. A customer who ordered 18 months ago gets a score of “1”, but a customer who ordered two weeks ago a score of “5”. Obviously, you could label these “buckets” to be more relevant to your average number of orders, how often customers would buy over time, and how much they’d typically spend.

Example

Example Company Ltd’s scores are:

  • Recency: 3
  • Frequency: 4
  • Monetary: 5

For this business, Example Company Ltd is in the top 20% of highest spenders in the last two years and the top 40% of most frequent spenders. Even though their last purchase was nine months ago, they’ve ordered more recently than 40% of the rest of the dataset they’re compared against, making them a “Loyal Customer”. 

Cohorts

If you have very different and diverse sets of customers, you’d want to split these “cohorts” out. An example of the need for cohorts would be if 50% of your customers place really big orders infrequently, and the other 50% place smaller orders often. This is particularly important when it comes to monetary value.

For example, if you have some direct customers who are independent retailers and a supermarket as a customer, there’s no point in comparing all those retailers against the supermarket in terms of monetary spend if there’s a huge disparity there. Or, say you sell to pubs directly, but you also sell to a distributor who distributes in bulk to hotels. The profile of sales to that distributor may be very different from the independent pubs who you’re supplying on a weekly basis.

Here are a few typical anomaly customer examples you might want to exclude from your overall analysis:

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  • Accounts that aren’t real customers and represent your own Direct-to-Consumer activity. Example: your own Amazon, eBay, or Shopify store
  • Accounts that are only there to account for and represent your own ePoS system, like your owned retail outlets or trade counters
  • Accounts where you have no control over their spend. Example: large, and genuinely anomalous, accounts that only ever place one large order with you once a year
  • Accounts where there’s a reason why they’re hibernating. Example: their business is seasonal, so they temporarily shut down at various points in the year
  • Accounts whose spend is very different from the majority of your customers

As a rule of thumb, we’d suggest sticking to two or three cohorts maximum. Remember RFM analysis is about measuring different customers against each other, so you only want to use cohorts if you have very different types of customers.

Build a model using scoring

So once we have these comparative scores, what do we do now? First, apply those scores to each of your customers, and then effectively build a 3D model of your customer’s behavior, similar to a Rubik’s cube.

Unsurprisingly, your best customers end up with a 333 score and your worst customers end up with a 111 score. Effectively, you’re building this out of those three dimensions to put your top customers in the top far corner and your worst customers in the bottom near corner. 

rubiks cube of RFM score

Source: Samba.ai

If you’re scoring 1-5, you get a more complex model (like a 5x5x5 Rubik’s cube). Although this is a more compounded illustration, a representation like this using 1-5 scoring is the classic way to do this calculation, and it allows you to build important profiles of customers.

rfm scoring 3d model

Source: Samba.ai

Making sense of the analysis

The problem is that it’s quite hard to work with 3D models and even harder to illustrate and visualize them, especially if you want to see all the sides of a 3D diagram at once. So, RFM analysis is usually visualized in a flatter, 2-dimensional pictogram, making it much easier to understand. 

RFM analysis 2d pictogram

Source: ProspectSoft

In a 2D visualization like the one above, new customers arrive at the bottom right as “New Customers”, and if they begin to spend frequently with a decent value they rise quickly up to “Potential Loyalist”, “Loyalist”, and eventually become “Champions”. But on the other hand, a “Loyal Customer” can drift into “Needs Attention” then “At Risk’”if they begin to spend less often or haven’t ordered in a while.

Ultimately, a customer that doesn’t re-engage fully or cannot be re-engaged then becomes a “Hibernating” customer, and eventually drops out of the diagram as lost or churned in the bottom left. 

The aim is to identify this trend early and act to reverse it long before you get to that stage. To do this, you should be calculating, recalculating, and resharing your values with your team at least once a month, but ideally weekly or even daily, so it’s fluid. Recalculating those “buckets” is also important to do monthly, in case some customers start purchasing more frequently.

All that math is a bit complex and can be daunting, but it is possible to do it manually on a spreadsheet. However, you ideally want a tool, like sales and ops planning software, to automate this and do the heavy lifting for you. Ultimately, for RFM analysis to be effective and accurate, it needs to be calculated every day as your customer and sales data changes.

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Why pay attention to lower scores?

Once you’ve got your calculations up and running, it becomes immediately obvious to most managers and business owners that RFM analysis helps you identify the best and most promising customers.

But in a small product business, you often already know who your best customers are. If you spoke to your sales, account management, or customer service teams, you could probably find out who your top-scoring customers are and are likely already building a good relationship with them. So it’s the middle and low scorers that are key to focus on.

The lower scores help you identify areas for improvement. For example, it can reveal things like:

  • Your “New Customers” need nurturing and onboarding
  • Previously “Loyal Customers” may have gone to a competitor and should be reactivated through a marketing campaign
  • Customers who purchase low-value products regularly are prime candidates to be moved up the value chain with an upsell campaign

All of these are opportunities to upsell, retain or reactivate a specific RFM segment which contributes to increasing your CLTV.

RFM analysis examples

So, how do you now use this analysis to make your business grow successfully? Let’s take some simple examples. 

RFM insights

Looking in more detail at each of the segments, there’s a clear description of each and what makes a customer fit into that segment, as well as actionable insights that you can use for every segment in the RFM analysis.

rfm customer segments

Source: ProspectSoft

Benefits of RFM analysis

For a B2B product seller, the benefits of RFM analysis are clear. Not only can RFM analysis help you monitor your customers spending behavior in real-time, but it will make marketing and sales efforts more strategic and timely.

Overall, RFM analysis helps you maximize the lifetime value of your customers, which is essential for profitable B2B success.

Limitations of RFM analysis

To experience the true benefits of RFM analysis, it’s really important to calculate it across your entire customer base on a daily basis. If you have hundreds or even thousands of customers, this will be manual, time-consuming, and monotonous. Look out for systems that have RFM analysis built in so the legwork is done for you.

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Even if you are using software or some kind of automation with RFM analysis built in, ideally it shouldn’t have hard-coded thresholds and limits. Otherwise, segmentation won’t be dynamic or scale as your sales and data changes. Make sure you can exclude those anomaly customers too; you don’t want any B2C data or those few larger customers skewing your stats!

Time to give it a try

Let’s talk about a few things you can do to take action with RFM analysis to achieve predictable and repeatable growth.

  1. Evaluate: Evaluate your Champions and Loyal Customers vs. your Hibernating and At Risk customers to refine your ICP.
  2. Compare: Compare your new business campaigns and current leads with your ICP to focus on creating future Champions rather than future Hibernating customers. Use case studies, testimonials, and personal references from existing Champions to close the right leads and secure new accounts. 
  3. Onboard: Stay on top of New Customers and Potential Loyalists by fully onboarding them and turning them into regular buyers. If you’ve got lots of new customers coming in, focus on the ones that match your ICP because these are your future Champions. 
  4. Develop: Target your existing customer campaigns and special offers to keep pushing new customers up, and older customers to the right, building more high-value accounts. 
  5. Upsell: Then, carefully target upsell to those customers that will respond and don’t waste your bandwidth on those that won’t.
  6. Focus: Prioritize your account management activity on At Risk and Don’t Lose Them segments, or better yet, use artificial intelligence to predict potential churn alerts to help you focus on these customers quickly and early. 

In summary, RFM is the only analysis for product sellers that creates predictable and repeatable growth every single time!

Now that you’ve completed your RFM analysis and segmented your customers, learn how you can align your sales and marketing teams to hit goals.


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Exclusive: Spirit delays shareholder vote on merger hours before meeting to continue deal talks with Frontier, JetBlue – TalkOfNews.com

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Spirit Airlines says it will decide on competing JetBlue, Frontier bids before the end of June

#Spirit #delays #shareholder #vote #merger #hours #meeting #continue #deal #talks #Frontier #JetBlue

A Spirit Airlines plane on the tarmac at the Fort Lauderdale-Hollywood International Airport on February 07, 2022 in Fort Lauderdale, Florida.

Joe Raedle | Getty Images

Spirit Airlines on Wednesday delayed shareholder vote on its proposed merger with Frontier Airlines until July 8, hours before a meeting scheduled for Thursday so it can further discuss options with Frontier and rival suitor JetBlue Airways.

It is the second time Spirit has delayed a vote on its planned combination with Frontier and extends the most contentious battle for a U.S. airline in years.

Spirit originally scheduled Thursday’s vote for June 10 but had delayed that for the same reasons.

Both Frontier and JetBlue have upped their offers in the week before the scheduled vote approached.

“Spirit would not have postponed tomorrow’s meeting if they felt they had the votes,” said Henry Harteveldt, a travel industry consultant and president of Atmosphere Research Group. Spirit didn’t comment on whether that is the case.

“We compliment the Spirit Board for listening to their shareholders, who clearly were not supportive of the Frontier transaction, and adjourning the Special Meeting,” JetBlue CEO Robin Hayes said in a statement later Wednesday.

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“It’s clear that Spirit shareholders have now handed the Spirit Board an undeniable mandate to reach an agreement with JetBlue.”

“This is like the end of a soap opera episode,” Harteveldt added.

Frontier and Spirit first announced their intent to merge in February. In April, JetBlue made an all-cash, surprise bid for Spirit, but Spirit’s board has repeatedly rejected JetBlue’s offers, arguing a JetBlue takeover wouldn’t pass muster with regulators.

Either combination would create the United States’ fifth-largest carrier.

JetBlue has fired back at Spirit, saying it did not negotiate in good faith, setting off a war of words between the airlines as they competed for shareholder support ahead of the vote.

Frontier didn’t immediately comment about the postponed vote.

Spirit shares were up about 2% in afterhours trading, while Frontier was up more than 1% and JetBlue was down 1%.

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Exclusive: Get hype for the first images from NASA’s James Webb Space Telescope – TalkOfNews.com

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Get hype for the first images from NASA’s James Webb Space Telescope

#hype #images #NASAs #James #Webb #Space #Telescope

Very soon, humanity will get to view the deepest images of the universe that have ever been captured. In two weeks, the $10 billion James Webb Space Telescope (JWST) — NASA’s super expensive, super powerful deep space optical imager — will release its first full-color images, and agency officials today suggested that they could just be the beginning.

“This is farther than humanity has ever looked before,” NASA Administrator Bill Nelson said during a media briefing Wednesday (he was calling in, as he had tested positive for COVID-19 the night before). “We’re only beginning to understand what Webb can and will do.”

NASA launched James Webb last December; ever since, it’s been conducting a specialized startup process that involves delicately tuning all 18 of its huge mirror segments. A few months ago, NASA shared a “selfie” marking the successful operations of the IR camera and primary mirrors. Earlier this month, the agency said the telescope’s first images will be ready for public debut at 10:30 AM ET on July 12.

One aspect of the universe that JWST will unveil is exoplanets, or planets outside our Solar System — specifically, their atmospheres. This is key to understanding whether there are other planets similar to ours in the universe, or if life can be found on planets under atmospheric conditions that differ from those found on Earth. And Thomas Zurbuchen, associate administrator for NASA’s Science Mission Directorate, confirmed that images of an exoplanet’s atmospheric spectrum will be shared with the public on July 12.

Essentially, James Webb’s extraordinary capacity to capture the infrared spectrum means that it will be able to detect small molecules like carbon dioxide. This will enable scientists to actually examine whether and how atmospheric compositions shape the capacity for life to emerge and develop on a planet.

NASA officials also shared more good news: The agency’s estimates of the excess fuel capability of the telescope were spot on, and JWST will be able to capture images of space for around 20 years.

“Not only will those 20 years allow us to go deeper into history and time, but we will go deeper into science because we will have the opportunity to learn and grow and make new observations,” NASA deputy administrator Pam Melroy said.

JWST has not had an easy ride to deep space. The entire project came very close to not happening at all, Nelson said, after it started running out of money and Congress considered canceling it entirely. It also faced numerous delays due to technical issues. Then, when it reached space, it was promptly pinged by a micrometeoroid, an event that surely made every NASA official shudder.

But overall, “it’s been an amazing six months,” Webb project manager Bill Ochs confirmed.

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Exclusive: Fight for Spirit Airlines goes down to the wire with competing bids from Frontier and JetBlue – TalkOfNews.com

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Fight for Spirit Airlines goes down to the wire with competing bids from Frontier and JetBlue

#Fight #Spirit #Airlines #wire #competing #bids #Frontier #JetBlue

The most heated airline battle in recent years comes to a head on Thursday when Spirit Airlines’ shareholders vote on a proposed tie-up with fellow discount carrier Frontier Airlines while rival suitor JetBlue Airways circles with increasingly sweetened takeover bids.

Spirit has repeatedly rebuffed sweetened, all-cash bids from JetBlue, arguing that such a takeover wouldn’t pass muster with regulators, and has stuck with its plan to combine in an also-sweetened cash-and-stock deal to combine with Frontier, first announced in February.

JetBlue’s surprise all-cash bid in April set off a fight over Spirit that last month turned hostile.

If Spirit shareholders vote in favor of the tie-up with Frontier, it would put the carriers on the path to creating a budget airline behemoth. The two carriers share a similar business model based on low fares and fees for almost everything else from seat selection to carry-on bags.

A Frontier Airlines plane near a Spirit Airlines plane at the Fort Lauderdale-Hollywood International Airport on May 16, 2022 in Fort Lauderdale, Florida.

Joe Raedle | Getty Images

If shareholders vote against the deal it opens the door for a takeover by JetBlue, which would retrofit Spirit’s yellow planes to look like JetBlue’s, including cabins with seatback screens and more legroom.

“JetBlue does not have many options to achieve a step-change in growth, and that explains why JetBlue has pursued this deal so doggedly,” said Samuel Engel, aviation consultant at ICF.

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JetBlue and Frontier have each argued their proposed transactions are key to their future growth, helping them better compete with large U.S. carriers and get fast access to Airbus narrow-body planes and pilots.

Either deal would create the fifth-largest U.S. airline.

Late Monday, JetBlue said it would raise the reverse breakup fee if regulators don’t approve a JetBlue takeover of Spirit to $400 million from $350 million. It also raised the amount it would pay up in advance to $2.50 a share, from $1.50 and added a 10 cent-a-share monthly payment to shareholders starting next year until the deal is consummated or terminated.

JetBlue previously offered to divest some assets in crowded markets to calm antitrust fears, but hasn’t said it would give up its alliance with American Airlines in the Northeast U.S., which Spirit has called out as a sticking point in that deal.

JetBlue’s latest offer came after Frontier late Friday raised the cash portion of its offer by $2 per share to $4.13 and increased the reverse breakup fee to $350 million to match JetBlue’s then-offer.

Spirit has stuck with the Frontier deal. CEO Ted Christie on Tuesday called the Frontier offer “very compelling” and told CNBC the airline wants to “focus our efforts on convincing the shareholders it’s the right thing to do.”

Proxy advisory firm Institutional Shareholder Services on Tuesday said that “the enhancements by JetBlue may be enough to offset the potential upside of the proposed merger with Frontier” but said it didn’t want to change its recommendation in favor of the deal with so little time before the vote.

Spirit postponed the vote from June 10 to continue deal talks with Frontier and JetBlue.

War of words

For weeks, JetBlue has argued that Spirit’s board hasn’t negotiated in good faith or fully considered its offer. It has repeatedly urged the budget airline’s shareholders to vote against the Frontier deal.

“The Spirit Board consistently ignored or refused to engage with JetBlue until faced with certain defeat on the original shareholder meeting date and then, in an attempt to avoid the widespread perception of its poor corporate governance, pretended to engage with JetBlue,” JetBlue said in a letter Wednesday again urging Spirit shareholders to vote against the Frontier deal.

Spirit has repeatedly denied claims that it hasn’t engaged with JetBlue in good faith.

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“Our board believes [the Frontier merger] is the most financially and strategically compelling path forward for Spirit with a greater likelihood of closing,” Christie said in a video message addressing shareholders on Wednesday.

All three carriers have traded heated words as they try to win over Spirit shareholders before the shareholder vote.

JetBlue late Monday wrote a letter to Spirit shareholders detailing its latest sweetened bid and accusing Spirit of making “misleading statements” regarding its antitrust doubts.

Frontier fired back in a lengthy news release Tuesday saying that “a Spirit acquisition by JetBlue would lead to a dead end — a fact that no amount of money, bluster, or misdirection will change.”

The high drama is coming from an already-consolidated industry that hasn’t seen a major airline deal since 2016, when JetBlue lost out to Alaska Airlines for Virgin America.

“This is as much as a potboiler for the summer than any trashy novel,” said Henry Harteveldt, a former airline manager and president of of Atmosphere Research Group.

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