Three metrics that will show you who your best customers are, where they are coming from, and ultimately how to grow your top and bottom line. Recency, frequency, monetary — RFM
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In this episode, I talk through how conduct some essential segmentation using Google Analytics.
I say essential because this is it — RFM — the mack-daddy of database marketing that dates back to the early catalog age. These three metrics will show you who your best customers are, where they are coming from, and ultimately how to grow your top and bottom line.
RFM and GA – Learn It, Embrace It, Profit From It.
00:29 – Intro to Google Analytics segments – Why Drew uses them, and why you should too
00:54 – “Whale segments”
01:31 – RFM – A key trio of metrics that will help you discover your best customers
02:36 – Setting an RFM threshold that’s specific to your business
02:48 – What an RFM segment looks like in Google Analytics
04:32 – How to create a new segment
04:46 – The metrics that are most predictive of future value
06:05 – Working with segment in Google Analytics after you’ve created it
06:30 – How to see what % of total revenue was generated by your segment
07:06 – What to do with this information – actionable insights
Links / Resources
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Okay, everybody. Today, I’m going to talk about Google Analytics segments. You’ve all probably wondered at one point or another, “What are these things up here, this blue circle? This orange circle? Why would I want to use them? Who cares? What is Google Analytics?” You’ve probably wondered all those things. That’s what I’m going to talk about today.Google Analytic segments, first. Why would you want to use them? Really, the question is why would you want to segment your users, and I think there’s many reasons to that. You might want to compare your email traffic to your pay traffic, or users from one part of the country to another part of the country.
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Why I segment, is because I want to get a growth. The way to do that, is first identify your most powerful, your best customers out there. I call them your whale segments. These are the ones that are driving your business. Once you’ve identified them, grow that segment. Any business has good and bad customers. It’s not uncommon to see that 20% of your customers drive 80% of your revenue. I call that 20% to your whale segment. We’re going to use Google Analytics to start to investigate who those whales are, and how we can acquire more of them.
The first question you’re probably asking is, “How do I identify those best customers?” I’m going to give you three metrics. RFM they’re called, that you can use to start to poke around and start to figure out who those best customers are. There are three behavioral metrics, and they were piling by the catalog industry in the ’50’s. If you want to read up on RFM, here’s a great Wikipedia article. Really, in summary, recency means how recently was somebody on your site. A customer who was on your site today, or who bought from you today is more valuable than one who bought from you two years ago. Seems intuitive enough.
Frequency is the total number of interactions a visitor or customer has had. Somebody who has purchased from you 10 times is probably more valuable to you than someone who’s purchased from you once. Monetary value is just the total dollar amount that somebody has spent with your retailer or your site. That’s RFM. Really, there are different thresholds. You want to set an RFM threshold for what is a good customer. These are going to differ business to business.
I’m going to show you some examples here from this retailer. In this case, this is the segmentation area. The blue represents everybody. That’s everybody who’s on my site. What I want to do is compare that, let’s see if I can pull out a whale segment. As I just said, there’s different ways you can define these whales. You may want to create a segment of those who have high R and high F.
In other words, customers or visitors to your site who’ve been on your site recently, maybe the last week, maybe the last month, and have purchased from you or interacted from you a lot. In this case, over twice they’ve purchased from me in the last 60 days they’ve been on the site. I call that a high RF segment. Here’s one I’ve done for visits, and I’ve defined this one as, they have more than 2 sessions on my site, and days since the last session or the recency is under 7 or equal to 7. You see you can do it for eCommerce, you can do it for a content site.
Here’s a high M segment. M being the total dollar amount they spent. Here I want to only look at customers whose revenue has been higher than $200. These numbers are pulled out of thin air. They’re more relevant for this retailer. Your retailer is going to be different. If your average purchase price is $1,000, you’re going to want to define a high M segment as maybe $2,000. If you want a content site where people are on the site every day, you’re really going to want a recency number which is a lot lower. Where as if people are on your site once a month, then you can say, “Hey, someone’s recent if they’ve been on my site in the last 6 months.”
How do you define these? You can create a new segment. Let me go into one here to show you how to edit it. You can bust out these segments by all sorts of criteria. Demographics, technology, behavior. Really the ones we want to pay attention to, the ones I think are most predictive of future value for you, would be behavior.
This is where you’re going to define your frequency, sessions. You’re going to go to your recency, which is days since last session here. Transactions per user, that’s another way to define frequency for an eCommerce business. Sessions would be more for a content based business. The enhanced eCommerce section, I can start to get at things like M, which is the total revenue per user. In this case, I’ve got a high M segment. These are customers who have spent $200 or more in the past, in this case, 90 days. You can see that this makes up about 0.26% of my total users on the site. In this case, the retailer’s average order size is about $100.
I’ve chosen an M threshold that is twice that. You can see here that I’m comparing the blue line, which is everybody who’s on the site, both customers and non-customers with the orange line, and the orange line is just that high M segment.
I go down here in my acquisition, all channels analysis. I see the high M segment is about 1.52% of my total. This is my total number of sessions, and a little between 1% and 2% of my total sessions are those customers who ultimately spend twice my average order size, or my high M segment. Here’s the kicker, you were all the way over to the right, to the revenue column. Wow. I made 4 million dollars, over 4 million in revenue during this time period, but over half of that revenue, 54% came from 1.5% of my total sessions on the site. Your jaw should be dropping to the floor right now, that’s right. 2% of my total visits between 1% and 2% is driven over 50% of my revenue. Why do you care? Why do you care about this? You care about this, because it’s a lot easier to identify and grow the small number of people than it is to go out and acquire just more people in general.
If you drill down and start to look at this high M segment, and look at it by product area, you’ll see that certain products are really driving the high M purchasers compared to otherwise. These are the products that should be on your homepage. If you go into marketing acquisition channels, you’re going to see here, something like we’re targeting is really driving 0, in this case 0, if my high M segment, whereas something like organic is driving a much higher percentage of my high M customers, that tells me maybe I should put more effort into content marketing and SEO.
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These are the kind of insights you get when you start comparing your whales to the rest of your population. I think it’s the primary reason you’d want to use Google Analytics segments. If you want more practical tips on how to grow your business, using these segments, check out my mailing list at nerdmarketing.com. Thanks, and have a good day.