You will need to focus. You will run out of time.
Executing on Database Gold TM will produce results in the form of additional referrals. More referrals means more closings. Which grows your database which produces even more referrals. That’s what’s called exponential growth and it is exactly what we want!
Eventually with growth comes a point where time becomes scarce and changes need to be made. You can no longer do what you once did since you have the same amount of time to handle more stuff. And that’s when we need to get laser focused on what (and who) matters.
One challenge we face when getting focused on the right people is figuring out who those right people are that we should be focusing on.
The R.F.M. model provides that direction…
R = Recency
Let’s say you just had an amazing experience at a restaurant. The food was amazing, service was over the top and the the ambiance was perfect. As you leave the restaurant someone catches you in the parking lot and asks what you thought of the experiencing dining at the restaurant. How would you respond?
The next day a co-worker is looking for a nice place to go out to eat that night and asks you for a suggestion. What comes to mind? Would you recommend the restaurant you just had a great experience with the night before? Probably so.
Now, 3 months go by. A close family member texts you and asks you for a nice place to grab dinner. They know you are picky and would only recommend the best places. A lot has happened in the past 3 months. Maybe you visited another nice restaurant recently. Or maybe enough time has passed that the experience has faded in your memory. You’d be lucky to remember and recommend the restaurant at this point in time.
The same is true for your clients. Everyone is different and so is their experience with you. It could be 3 weeks or maybe 3 years before the recency factor starts to fade. But there is a window of opportunity immediately after a transaction with you that can produce more opportunities through referrals or repeat business.
F = Frequency
Do you have a favorite restaurant? One that is reliable, convenient and has good food.
How about a quick physics lesson? Everyone loves physics, right!?
Newton’s Second Law of Motion states an object in motion will continue in motion unless acted upon by an outside force.
You are the object. Going to the restaurant is the motion. You will continue going there unless there is a significant reason (outside force) not to.
So, unless you have horrible service, probably multiple times, a bad food experience or you move away from the area the restaurant is loated in you will probably continue to go there.
The same is true for your clients. If you have someone who has used you multiple times for their transaction it is very likely they will continue to do so unless something significant occurs.
Consider this about repeat clients:
- Repeat clients spend 67% more
- Repeat clients are willing to pay 5% more
- Repeat clients are more likely to work with you again
- Repeat clients are 50% more likely to refer you to others
- Repeat clients cost just 10-20% of the cost to acquire a new client
- Repeat clients convert at a much higher level than new clients
M = Monetary
Why stop with the restaurant analogy now…
Let’s say you own a McDonalds. You have some people that love your dollar menu and will buy a hamburger and a large drink (since all drinks are the same price) and pay $2 on their visit.
But you’ve also got the family that goes through the drive-thru on their way to the soccer game because they didn’t have time to cook at home. They each get a value menu and they super size it.
Which customer has more value to you? Of course the family does.
The same is true for your clients. Who are these people in your business? The ones that are the highest value to you per transaction?
RFM makes sense. You should spend the time on the people that recently worked with you, work with you repeatedly and offer the highest value to you and your business. But identifying them can be difficult at times.
Consider the possibility of a super-high-value client who closed 12 years ago versus the first time home buyer who bought 3 years ago and has moved every year since. Which client should you focus your attention on?
That’s where calculating an RFM score becomes helpful. To do this you will create 5 buckets for each part of the RFM model:
- Recency: Closed in the last month (5), last quarter (4), last 6 mo (3), last year (2), last 3 years (1)
- Frequency: 6+ closed transactions with you (5), 5 closed transactions (4), 4 (3), 3 (2), 2 (1)
- Monetary: 5X net revenue of average (5), 4X (4), 3X (3), 2X (2), average net revenue (1)
Now you simply go through your database and calculate a score for each client. The highest scoring clients are where you should laser focus.
Technology can be very helpful as you complete this exercise otherwise you will be going through your database one-by-one to manually calculate a score for each client which will be very tedious and time consuming. And it is likely you are doing this exercise because you have limited time so this will be the last thing you will want to do.
Many CRM tools have reporting capability where you can pull data that fits certain criteria. Or at least export the data into a Microsoft Excel file where the database can be manipulated.
Don’t have the time?
Don’t have the skill?
Don’t want to spend the time?
If you simple don’t want to or can’t do this on your own there are options.
- Delegate it to a skilled assistant
- Find someone in your office who can do this for a small fee
- Use virtual assistants or services like Upwork
80/20 your 20%
The 80/20 rule states that 80% of your results comes from 20% of your efforts.
Wouldn’t the same hold true if we were to 80/20 the 20%. In other words, if we eliminated the 80% of the stuff we do that only generates 20% of our results we are left with the 20% that does.
If we 80/20 that 20% we end up with 64/4.
But keep going and 80/20 the 4%…we end up with 51/1.
51% of the results you get can be generated from just 1% of your efforts.
The 80/20, 64/4, 51/1 model is a bit simpler to utilize than the RFM model but still requires some analysis of your database.
Rather than calculating a score for each person in your database the objective here is to identify your 20%, 4% and 1% buckets.
In Module 2: Go Deeper you already figured out your top 20% through the referrals received. If you skipped over that step (you were naughty) then you will want to go back and complete that before moving on to identifying your 4% and 1% groups.
Once you have your 20% identified the process to identify your 4% and 1% is very simple. You just identify your top 20% within the 20% group. And then repeat that one more time.
Let’s run through an example:
Top 20%: Goal of 50 to 150 People (10 to 30% of total database)
Our goal is to identify the top 10-30% (50 to 150 people) based on referrals received in the most recent 24 months as we did in the Go Deeper Module.
You review referrals received and identify 157 people sent you referrals. 157/500 is 31.4% which is too many so you reduce the time frame from 24 months to 18 months resulting in 87 people who sent you referrals or 17.4% of your database. This is our top 20%.
Top 4%: Goal of 9 to 26 People (10 to 30% of top 20%)
To find our top 4% we find those that referred someone who closed.
We end up with 23 which falls within our goal range so this is our 4% group.
23/87 = 26%
23/500 = 4.6%
Top 1%: Goal of 2 to 7 People (10 to 30% of top 4%)
Now we will find those that have referred us multiple closed referrals in the past 18 months. We’ve got 3 and that falls within the goal range of 2 to 7 so these three are our top 1% clients.
3/23 = 13%
3/500 = 0.6%
This is an example for illustration purposes only.
Please use this as a guide as you review your own database and referrals received.
You can combine the RFM and 80/20 models for the best possible method of identifying your top clients.
Once you’ve scored everyone in the database with the RFM model you will find those that have a score in the top 20%, top 4% and top 1% so you can follow the plan below…
You have segmented your database using the RFM or 80/20 models. Now you need to determine what you will do differently for your 1%, 4% and 20% that you don’t do for the rest…because you simply don’t have the time to spend on everyone and you want to leverage your time, creating the ability to spend more time doing other things you enjoy.
Use the chart below to see the activities based on the group your client is in…
Download the PDF to see the activities based on the group your client is in…