You probably already have something like this posted to your office/cubicle, right?
The "Value Grid" is a table that illustrates how much twelve-month profit you will generate from a customer with various Recency/Frequency attributes.
Freeze your file as of August 22, 2010. Segment customers into Recency/Frequency combinations. Then measure customer profitability across these segments, from August 23, 2010 to August 22, 2011.
Your benchmark is the Recency = 1 / Frequency = 1 segment. This is how much profit you generate in the next year by acquiring a new customer. If you lose $22.00 profit acquiring a customer, then you've got problems, because in this table, the customer pays back $6.52 in the next year. Oh boy!
Similarly, you explore the cost to reactivate a customer against future payback. If you have a 36 month 3x buyer with $2.43 future value, you might be willing to spend a few extra dollars to convert the customer to a 4x buyer.
Then look at the customers who pay the bills! In this case, customers who purchased recently and purchased five or more times generate a boatload of profit, don't they?
Create a Value Grid. Post it on the wall of your office/cubicle.
RFM is great for targeting one catalog to one customer. However, RFM is tough to manage in a multichannel environment. This becomes clear ...
If you don't like geeky math, please skip this post, because I am about to show you how the sausage is made! I have eight variables in...
It's common for folks to measure cost per new customer. Total Marketing Cost = $10,000. Total New Customers = 130. Cost per New C...