You thought finding toilet paper was hard. How about finding your most valuable customers?

Summary

• Currently, many businesses value customers based on their first purchase. As a result, they may under-invest in customers that would be higher value over a period of time and over-invest in lower value customers.
• However, we can value customers based on their lifetime value, which is the total spend of the customer over a given period of time.
• One way to measure lifetime value is to segment based on recency, frequency and monetary value.
• By calculating RFM scores for our customers, we can segment our customers and understand the highest value customers,as well as those with low frequency, low average spend and those who have not visited for a long while.
• We can then take action based on these segments to increase long term business revenue.

What do we mean by lifetime value?

You acquire a new customer. Not only that, but the customer returns again and again, spending hundreds of dollars every time they return. This customer must really love you! However, traditionally, you value this customer based on the revenue from their first purchase and now, this customer does not look so good. In fact, you would pay…