Jimmy Kim breaks down the RFM model: Recency, Frequency, Monetization. Most businesses lose money on their bottom 20% of customers and should focus on moving them into the profitable middle 60%, then pushing those into the top 20% VIP tier.
RFM is recency frequency monetization. It was the original way of creating repeat buying behavior by using data that you have available for you, right? You have a 20% bucket, you have a 60% bucket and 20% bucket. Your first 20% bucket is your lowest CLTVs. That means that you're losing money on these customers even though you sold them a product. Then you've got your middle, which is your average. These are the ones that make you money. They're healthy, whatever. And then you've got your ultra VIPs on the bottom, which is the last 20%. Your goal in the RFM model is very simple. Take the people from the 20% bottom bucket, move them to the 60% bucket. You take the 60% bucket, move into the 20%. Now at the same time, your averages are sliding. So it's not as easy as it sounds because it's a constant shift in movement and scale. Subscribe to the pod.
