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What is 80/20 RFM Analysis?

More than 100 years ago, Italian economist Vilfredo Pareto wrote a paper arguing that 80% of the land in Italy was owned by 20% of its population. This would come to be known as the Pareto Principle. Over time, this observation would become a staple in applications ranging from math and software to sports and even accident prevention. For ecommerce, the 80/20 rule is simple: 80% of your business comes from 20% of your customers.

Who are these valuable customers? How can you find them? What can you learn about them when you do? That’s where the 80/20 RFM analysis comes in. RFM stands for Recency, Frequency, and Monetary — the three metrics used to determine a customer’s lifetime value. Our 80/20 RFM analysis explores these three metrics in your existing customer base.

WEB - 80_20 Ebook (1)

Who Benefits from an 80/20 RFM Analysis?

At Unific, we believe — and have proven — that the benefits of 80/20 RFM analysis aren’t limited to enterprise ecommerce merchants. The insights gained from this analysis can be even more meaningful for aspiring ecommerce brands.

Every business that has customers has data, and that means there are opportunities to use that data to make more informed decisions and leverage powerful tools to take action.

 

By examining the length of time since a customer’s last order, the number of orders they’ve made over a certain timeframe, and how much money they’ve spent with you in that period, we can help you can narrow down which buyers you should be focusing your efforts on.

top-customersCreated with Sketch. R e c e n c y R a t i n g S t a r t D a y s E n d D a y s P e r c e n t o f C u s t om e r s N u m b e r o f C u s t om e r s T o t a l C u s t om e r Li f e t i m e R e v e n u e P e r c e n t o f C L R e v e n u e 5—Stars 30 17.26% 6834 $2,247,383.81 21.29% 4—Stars 31 60 10.19% 4037 $1,217,048.87 11.53% 3—Stars 61 90 9.99% 3956 $969,687.69 9.18% 2—Stars 91 180 21.26% 8417 $2,036,212.02 19.29% 1—Star 181 41.30% 16355 $4,087,696.83 38.72% Recency: 5—star rating based on days since last 100.00% 39,599 $10,558,029.22 100.00% F r e q u e n c y R a t i n g M i n N u m b e r o f O r d e r s M a x N u m b e r o f O r d e r s P e r c e n t o f C u s t om e r s N u m b e r o f C u s t om e r s T o t a l A mo un t o f R e v e n u e P e r c e n t o f R e v e n u e 5—Stars 5 4.55% 1801 $1,611,270.4 1 15.26% 4—Stars 4 4 3.31% 1311 $892,208.5 8 8.45% 3—Stars 3 3 7.10% 2813 $1,389,774.9 5 13.16% 2—Stars 2 2 17.69% 7006 $2,279,864.3 7 21.59% 1—Star 1 1 67.35% 26668 $4,384,910.9 1 41.53% Frequency: 5—star rating based on total # of Orders 100.00% 39,599 $10,558,029.22 100.00% M on e t a r y R a t i n g M i n A mo un t o f O r d e r s M a x A mo un t o f O r d e r s (l e s s t ha n ) P e r c e n t o f C u s t om e r s N u m b e r o f C u s t om e r s T o t a l A mo un t o f R e v e n u e P e r c e n t o f R e v e n u e 5—Stars $2,000 2.32% 917 $4,104,917.5 1 38.88% 4—Stars $1,025 $2,000 2.68% 1061 $1,589,794.0 2 15.06% 3—Stars $475 $1,025 5.94% 2353 $1,696,084.4 3 16.06% 2—Stars $65 $475 39.84% 15778 $ 2,611,545.0 7 24.74% 1—Star $65 49.22% 19490 $ 555,688.1 9 5.26% Monetary: 5—star rating based on total lifetime revenue 100.00% 39,599 $10,558,029.22 100.00%
Recency, Frequency, Monetary analysis helps you identify similar attributes across your best customers to 

Reports Included in Your 80/20 RFM Analysis

RFM Analysis

  • Recency - when did a customer last purchase?
  • Frequency - how often do they purchase?
  • Monetary - how much do they spend?

Top Customer Analysis

  • Isolate the top 1%, 5%, 10% and 20% of customers
  • Cross-examine those groups across criteria like order value, days between orders and more
  • Create actionable list segments for HubSpot workflows

Storewide Cohort Analysis

  • Examines the quality, against established benchmarks, of all customers acquired in a specific timeframe
  • Measured in monthly and yearly time increments

Customer Segment Cohort Analysis

  • Examines the quality, against established benchmarks, of customers within their defined segments acquired in a specific timeframe
  • Measured in monthly and yearly time increments

Questions Your 80/20 RFM Analysis Will Answer

  • Who are your best customers?
  • Who are your most loyal customers?
  • Who are your most promising customers in terms of lifetime value?
  • Which latent customers should you invest in reactivating?
  • Which customers are you at risk of losing?
  • Which lost customers should you stop paying attention to?
  • Which group of customers is most likely to respond to your current campaign?
  • Are you acquiring more top customers over time compared to low-quality customers?
  • How is the quality of your customer acquisition over time?
  • What do your best customers look like in comparison to the rest of your customer base?
  • What is the general health of your customer base?

Want to learn more?

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