Transforming a Healthcare Startup’s Customer Retention with RFM Analysis — A Marketing Adventure

Hey there, growth hackers and marketing maestros!

Guess what? Today, we’re gonna dive into how we transformed a healthcare startup’s fortune using none other than the magical RFM model!

But first, let’s break down RFM into bite-sized pieces with extra toppings of “examples”, shall we?

What is RFM Analysis?

The year was 1995 when Wansbeek and Bult published a groundbreaking article that gave birth to the RFM model.

They found out that roughly 80% of sales came from 20% of customers (Pareto principle FTW!).

So, how does RFM help? Simply put, it helps predict customer behavior based on existing data. Let’s break it down:

1. Recency: When did they last buy? Set scorecards according to your business type. Example: If you’re a movie rental service, someone who rented a movie within the last 30 days could score the highest (5).
2. Frequency: How often do they buy? Again, consider your industry. Example: For the same movie rental service, if your best customers rent 12 times a year, those who rent 11–12 times get the highest score.
3. Monetary value: How much are they spending? Determine scorecards based on your average revenue per customer (ARPU). Example: If a movie rental costs $1 and your annual ARPU is $8, you could give the highest score to those who spend more than $10 per year.

Everything You Need To Know About RFM Analysis

Increase revenues & loyal customers by using RFM analysis

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That’s the basics. Now, let’s see how to calculate RFM.

How to Calculate RFM

🔢 Step 1: Assign scores to each customer for Recency, Frequency & Monetary Value. The highest score can go up to 5 and the lowest score is 1. Define the scoring range based on your business type.

📊 Step 2: Get the data ready for a 2 by 2 matrix. Recency goes on the X-axis, and the average of Frequency & Monetary Value goes on the Y-axis.

🎯 Step 3: Use the RFM grid to create customer segmentation. Your grid will have 8 segments: 4 positive and 4 risky. Your goal is to move customers from risky segments to positive ones.

The positive segments are:

1. Champions: High spenders who purchase frequently and recently. Keep ’em happy!
2. Loyal customers: High spenders who purchase frequently and have purchased recently. Maintain and push towards the champions group.
3. Potential loyalists: Those who could become loyal customers/champions with increased spending or purchase frequency. Upgrade ‘em!
4. Big spenders: High spenders who used to purchase frequently but haven’t recently. Get them back in the game ASAP!

The risky segments are:

1. New customers/Low spenders: Either new or those who purchased recently but spent little and very infrequently. Monitor or create a new customer funnel.
2. About to lapse: Low spenders who purchased infrequently and moderately recently. Encourage more frequent purchases.
3. At risk: Customers who haven’t visited recently but used to spend and purchase moderately frequently. Win them back!
4. Lapsed: Low spenders who didn’t purchase recently and bought most infrequently. Understand why they lost interest and improve.

🎲 Step 4: Place all your customers in different segments. Focus on shifting customers from risky to positive segments.

And that’s how you make the most of RFM Analysis!

By understanding your customers and tailoring your marketing strategies, you can turn risky customers into brand champions! 💪

Back to Our Healthcare Startup Adventure! 🚀

The startup had two problems. Firstly it was losing big spenders (ouch!), so we stepped in with RFM to save the day.

We targeted those high-rolling customers with an exclusive offer they couldn’t resist:

A new home service just for them. 🏠💉

Talk about feeling special, right?

But, we didn’t stop there. The startup’s second problem was customer churn.

We identified those with low purchase frequency. And offered some discount if they’d return within the next month or so.

And it worked!

The results

And guess what? The results were nothing short of jaw-dropping!

The churn rate dropped by a whopping 11% and customer lifetime value skyrocketed by 8%! 📈🎉

Final Thoughts

So, my fellow marketing aficionados, that’s how we changed the game for that healthcare startup using the powerful RFM model.

The takeaway? Know your customers, treat ’em right and watch the magic happen!

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