RFM for Success: The List Inventory

Oct 11, 2005 6:34 PM  By

Advanced house-file modeling techniques have their advantages. But nothing beats the simple recency, frequency, monetary list inventory as a quick, easy-to-read snapshot of your house file.

Your RFM list inventory has two chief benefits: 1.) Viewed as a stand-alone item, your list inventory is an indispensable tool to help you plan a mailing campaign. 2.) Viewed historically – either by season or year – the list inventory gives you a quick diagnosis of the health of your house file and your business.

First, what is a list inventory, and how do you prepare it?

An RFM list inventory will segment your house file by quantity of names into predetermined “buckets.” These buckets represent your traditional list segments, such as 0-6 month buyers (recency), 2X buyers (frequency), $50 – $100 (monetary).

If you already segment your file by RFM, use your current segmentation for your list inventory. If you aren’t using RFM, start with the accompanying chart and modify, such as by adding 3X+ buyers, to fit your specific business needs. Use a spreadsheet program to create your inventory grid. You will fill in the quantities of the segments in the appropriate cells.

If you are b-to-b mailer, you may need to modify your monetary segmentation to make the buckets cover a greater dollar spread. For example, the $0 – $50 bucket may be too small for your average orders. You may need to expand it to $0 – $150 and modify the other buckets in a logical progression based on your historical average order value. In addition, if you market a commodity product that your customers frequently reorder, you may need to expand the range or add additional frequency buckets.

On the other hand, if you are a niche consumer cataloger that has smaller average orders, the dollar range covered in these monetary buckets may be too big to be practical. Select buckets that work best for your business.

To help you determine the size of your buckets, apply two principles: 1. Try to have each bucket contain enough names to receive 100 responses per segment when mailed. 2. Once you have your buckets set up, maintain consistency from mailing to mailing, because changing your RFM segmentation across mailings makes your historical response (and therefore your projections) difficult to read.

Once you have your list inventory established, use it as a tool to plan your mailings. Each bucket or cell in your list inventory spread sheet represents a segment of your house file. You will literally be able to pull the same number of names for each file segment as are represented in each bucket.

If you’ve been using RFM, you’re ahead of the game. You will already know the average response rates and order values for each segment or bucket. Based on this historical response, plan the frequency of your mailings, your re-mailings and the overall quantity of your campaign as shown by the numbers in your list inventory.

If you haven’t been using RFM, the safest strategy is to mail your campaign as you normally would, based on your mailing history. For example, if you are a b-to-b mailer with a house file of 30,000 records, and you mail your entire house file quarterly, plan on mailing the same way with the same frequency. But use your list inventory to segment your file and be sure to assign a unique keycode to each bucket for each mailing.

Assigning a keycode, and tracking the response by keycode, is vital and cannot be overemphasized. If you are simply mailing your house file without segmenting it, in the simplest and plainest language, you are making a mistake!

Yes, even if your file is so small that you will mail the whole thing anyway. Why? How do you know that you can’t re-mail the top segments? When you track your response history based on your RFM segmentation, in as few as six months, you will often see a clear, and sometimes astounding, response pattern. It is highly possible that you are leaving money on the table and not knowing it.

In addition to planning your mailing campaigns, your list inventory is a valuable indicator of both your house file and your company’s heath. Once you start maintaining your list inventory, track the growth or reduction in file count for each segment. For your company to grow, you will want to see your 0 – 12 month buyer file grow from year to year.

If your 0 – 12 month file is growing, this indicates that you will likely see your future sales increase in some proportion to this segment’s growth. If your 0 – 12 month is shrinking, you will likely see reduced sales in the future. If reducing your sales was not planned, now is the time to prospect or mail deeper into your house file to boost your top line! Otherwise, you may be in for disappointing results in the next few months.

Plan to create a list inventory for every mailing campaign. (Some companies run an inventory monthly.) Begin comparing your current list inventory with your previous list inventory. After a year, you will also be able to compare list inventories by season. When you study these comparisons, you will be able to plan your mailings more effectively, forecast your projections with more accuracy and think strategically about the future of your business.

George Hague is senior marketing strategist at J. Schmid & Assoc., a Mission, KS-based consultancy.