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The Power of Recency and Frequency in Growing Your Small Business

Guest post by: Corte Swearingen

Article Overview: The most powerful predictor of future behavior is past behavior. This article explains the predictive power of Recency and Frequency when marketing to your customers.

The Power of Recency and Frequency in Growing Your Small Business

Maybe you have heard the term Recency in connection with database marketing. While some small business owners are using it to their advantage, most others are not. The purpose of this article is to get you thinking about using the power of Recency to market to the right customers at the right time.

As a small business owner, who do you think would be more valuable; someone that visited your website just yesterday or someone that visited 8 months ago? If you said the person that visited your website yesterday, I would agree. The person that came to your site yesterday is more recent than the one that came 8 months ago. While this seems like a very simple concept, it is a very powerful tool you can use to increase your business profits.

Suppose that you placed a "most recent" transaction date in your customer database every time a customer made a purchase. In other words, if a customer bought your widget on 2/06/08, you entered this transaction date within their customer record, overwriting the previous transaction date. Imagine sorting your entire database in order of most recent transaction to least recent transaction. You would then have a list of customer names sorted by most recent to least recent transaction.

Recency is the number one predictor of future behavior. The more recent someone has done something, the more likely they are to do it again. This has been proven time and time again within database marketing circles.

Recency is also the best predictor of customers that will respond to a marketing promotion. If you have a limited budget for promotion and have a customer list of 5,000 names, sort it by Recency and promote to the top 20%. You will save money and will be marketing to the folks that are most likely to respond.

Now suppose you have two customers and one of them ordered twice within the past 12 months and the other ordered four times within the past 12 months. Which one is more valuable? Well, you might say it depends on how much they spent and that would be somewhat true but forget about the amount spent for now. I would argue that the customer that had 4 transactions is more valuable than the one that had only 2 transactions. This concept is known as Frequency. The more frequent a customer, the more valuable they are. The best predictor of future behavior is past behavior.

Imagine now sorting your customer database by both Recency and Frequency. Now you have a list of customers sorted by not only the total number of transactions, but also the date of last transaction. Now you have an incredibly powerful indicator of future customer behavior. In fact, you can now reallocate your marketing dollars to the customers that are the most recent and have the highest frequency of transactions. These are the folks that will most likely respond to your marketing efforts.

A small business that sends the same piece of literature to every single customer every single time is just wasting money - period. By using Recency and Frequency data, you can budget a much larger percentage of your marketing dollars to the customers that are much more likely to respond. This is the best way to increase your profits while simultaneously reducing your marketing expenses.

Every small business needs to be taking advantage of these concepts. Recency and Frequency are two powerful tools you cannot afford to ignore!

What important information is your customer database hiding?

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Article Tags: 12 months, budget, business profits, circles, customer database, customer names, customer record, database marketing, money, recency, right time, small business owner, small business owners, widget



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