Dear WuBookers, sometimes to get to know yourself better, you need to get to know others first. No, we’re not talking about philosophy, but introducing a topic that follows the same principle: RFM analysis. It is a marketing technique that allows you to divide your customers into segments in order to better target your commercial offer and marketing activities. Here’s what it is and how you can use it to increase your profits.

What is hotel RFM analysis

RFM analysis examines hotel (or vacation rental or B&B) guests according to three parameters, summarized in the initials of the acronym:

• Recency: how much time has passed since the last stay at the property, i.e., how recent it was;
• Frequency: the frequency of reservations, i.e., how often a guest has stayed at the hotel;
• Monetary: how much the customer spends.

This data can be examined for limited periods of time, for example two years, to get an accurate overview of customer behavior and “quality.”
For example, a customer who has stayed recently (and was satisfied with the experience) is more likely to repeat their reservation, and is therefore more profitable; a person with a good purchase frequency demonstrates a certain level of loyalty; and those who spend more are certainly welcome guests, and should be encouraged to return in the future.

Segment and classify your audience with RFM analysis

Knowing the RFM metrics of each customer helps you divide your audience into different clusters by value scale. One hypothesis could be: best guests, who have returned several times in the last year and spent a lot; guests with good potential, i.e., those who have stayed only once but invested a high budget.

In addition to these, there may also be regular guests who have spent little or occasional guests (only one reservation) with low spending.

Finally, there are likely to be inactive guests, i.e., those who belong to all categories but have not purchased accommodation in the last two years.

In most cases, the percentage of guests with the highest economic value is significantly lower than the others. RFM analysis serves precisely to highlight how your audience is distributed across the various categories and to help you better structure your marketing strategies.

The advantages of RFM

RFM analysis therefore offers numerous advantages. It allows you to:

• categorize customers into groups based on their behavior: this is very useful information for gaining an overview of perceived quality and satisfaction levels. In this sense, reviews are also an important indicator;
• identify clusters that are worth working on, potential customers, and those that are best abandoned;
• translate data into buyer personas, i.e., demographic data, interests, and specific preferences that can be exploited in marketing activities;
• conduct further analysis to identify the channels of origin and improve investments based on their value;
• consequently, personalize communication and promotions to target the best audiences and predict their real potential (including the break-even point).

Let’s take a concrete example. We have found that high-spending customers often opt for breakfast in their room. Well, then it makes sense to offer at least one option that includes this service. Or, you may have noticed that your best guests tend to book well in advance or at the last minute. Your offers should be activated accordingly, both in terms of timing and channels. Those who book well in advance of their arrival date may have been searching for information online for longer: being found at the right time and in the right place (on OTAs but also on metasearch engines) is key to attracting the attention of those who plan well in advance!

The most profitable groups can then be stimulated with ad hoc actions such as targeted email marketing campaigns.

How to perform RFM analysis for your hotel

Performing RFM analysis manually is not easy, especially when dealing with large amounts of data. That’s why there is specialized software for Business Intelligence and Data Analysis that scans your database and provides an overview of the situation.

However, although important, this type of analysis is not the only one recommended for increasing revenue. ADR and RevPAR, for example, are equally essential indicators for understanding the health of your property and improving its performance.

Accurate and comprehensive data collection and survey tools such as Zak, the hotel PMS by WuBook, greatly simplify marketing strategy and operations in general. For this reason, before embarking on sophisticated surveys, it is a good idea to make sure you have the right technology to handle your daily, ordinary, and extraordinary activities.