RFM Analysis: The Best Kept Secret for B2B Product Sellers

Do you sell physical products to other businesses? Recency, Frequency, and Monetary Value (RFM) analysis is a technique used by businesses around the world and is an extremely useful strategy for the growth of B2B wholesalers and distributors.

Knowing how to calculate this for your entire customer base and how to leverage RFM insights can be tricky, especially for small businesses. Yet for product sellers, repeat orders are critical to profitable success.

In this article, we explain what RFM is and why you should care, how to calculate it, and how you can use RFM insights to create predictable, repeatable, and scalable success in your product business. What is RFM analysis?

Before we get into the details, let's take a moment to understand what RFM is. Then we'll come back to the most important question: how can you use this data to accelerate your funnel and flywheel and drive the growth of a B2B wholesale and distribution business?

RFM is an industry strategy for segmenting customers using the data you already have. This analysis technique assesses customers' spending habits in three areas: recency, frequency, and monetary value.

It is well used by large companies but often ignored by SMEs. Small businesses usually have the necessary data, but understanding and calculating the RFM seems complex and daunting. It's not necessary ! The principles are logical and easy to understand, and modern technology makes computing much more accessible for SMBs with tighter budgets, as hiring expensive consultants or data analysts is no longer necessary.

Put simply, RFM is the number one strategy for wholesalers and distributors. But what do we mean by that?

Everyone wants a repeatable and predictable way to grow their business. To do this, you need to be able to read minds and know exactly what each customer expects of you at every stage. Well, that's kind of what RFM is.

But, before we get into that, let's first dive into modern sales and marketing theory.

There is a seemingly endless debate between the funnel and the flywheel. In truth, both models are correct to some extent.

Source: Hubspot

Of course, you need to attract new customers; Lead generation is, of course, a primary goal for sales and marketing (the funnel). But, for wholesale and distribution businesses in particular, repeat orders and loyal customers are critical to profitability and predictable growth (the flywheel). Customer success is key. Frankly speaking, when repeat orders are your daily bread, you can't afford to have a leaky bucket!

So successful wholesale and distribution businesses adopt a growth agenda that combines the funnel and the flywheel to maximize sales and customer engagement.

Source: ProspectSoft

In any business, you want to encourage new customer flow, which means attracting the right kind of quality leads that fit your Ideal Customer Profile (ICP). Then you need to nurture your leads throughout the sale and increase your close rate.

Doing these three things well will generate more new customers for your business, which is great! But, in wholesale and distribution, even more than in other types of B2B sales, it is essential to successfully onboard customers, increase their average order value and average order frequency, and retain them longer to maximize customer lifetime value (CLTV). In other words, focus on existing customers to increase your profits.

Let's take a few simple examples that we can all recognize. Distribute coffee beans to cafes, bikes to bike shops, packaging to takeout or food to delis and restaurants. Whatever you sell, the first sale to a customer is rarely profitable on its own. The profit is in the long-term relationship and the repetition...