The RFM Formula

October 18th, 2010 by Bob Bly

When I first got into direct marketing, I took a course in direct mail copywriting with legendary copywriter Milt Pierce at New York University.

One day a student asked, ?Professor Pierce, why is it that, as soon as I give a donation to a charity, they immediately send me another letter asking for more money??

Milt replied: ?Because they know, from experience, that the person who just made a donation is the one most likely to give again.?

Huh? This threw me. It seemed counterintuitive.

?But Professor Pierce, if I just gave money to a charity, then I would feel I?d fulfilled my obligation for at least a while. And I might even be annoyed that they are coming back to me asking for more.?

?Nonetheless,? Milt replied, ?experience proves that the person who just gave is the most likely to give again.?

He explained that this phenomenon was called RECENCY, and it held for commercial direct response as well as nonprofit, and that it was part of a formula called ?RFM? ? for ?recency, frequency, and monetary.?

The first element, RECENCY, refers to how recently the person made a purchase through direct response.

According to RFM, those who purchased the most recently are most likely to buy.

This is why it?s usually worth paying a premium to rent the ?hotline? names on any mailing list ? the names of customers who have bought via mail order within the last 12 months or so. The hotline names invariably outperform the other names on the list, because of RECENCY.

The ?F? in RFM is FREQUENCY ? how often the customer buys.

Here, we know that the more often someone buys, the more responsive they are to additional mail order offers.

This is why some mailing lists offer a selection called ?multi-buyers,? These are customers who have bought more than once. Invariably, multi-buyers outperform the names of one-time buyers on the list.

The ?M? in RFM is MONETARY ? how much money the customer spends, or the size of his average order.

Here, you want to look for mailing lists where the average order is in the same range of your product?s price.

Let?s say you are selling a video program on ?Overcoming Infertility: How to Have a Child When You?ve Been Trying Without Success.? The price is $99.

You rent a list of people who have subscribed to an infertility magazine for $12. You mail to the list, and the mailing doesn?t pull. Why not?

The problem is this: while the people on the list have demonstrated (a) an interest in infertility and (b) that they buy information by mail, they have NOT demonstrated that they will spend $99 in the mail. Twelve dollars, yes; ninety-nine dollars, no.

The solution? Find a list of people who have, say, attended a workshop on infertility or bought a test kit via mail order for $100. This might work, because not only do you know that the people on the list are mail order buyers and interested in infertility, but they have demonstrated that they will shell out a large amount of money for the right offer.

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This entry was posted on Monday, October 18th, 2010 at 2:39 pm and is filed under General. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.

9 responses about “The RFM Formula”

  1. Clay said:

    Excellent point. It supports the fact that all aspects of a direct mail campaign must be carefully planned, including making sure your list includes not only people who are interested in your topic, but those who have a history of spending at the price level of your offering.

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  3. Alex said:

    RFA stands for real friends always. In social media making friends is everything.

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