Detecting customer defection with Customer Purchase Latency

Though RFM can be used to detect customer defection, sometimes it's too slow to notice the change. In order for an RFM value to change it would require your customer to delay orders for long enough that they fall into the lower 40% of your customer base for Recency. That can cause RFM to lag behind potential defections.

A much better way is to use that delay in-between orders, which is called Customer Purchase Latency.

For example if your store has 50 days in-between orders on average, then on day 51 you can assume a customer is starting to defect as they "should have" ordered already.

"Average" though means that some customers are active and buy after that period. 50 days isn't your magic number, it's the midpoint between all of the latencies of individual customers. That's why I recommend adding a bit of a buffer to your Customer Purchase Latency.

How much buffer will depend on your actual latency values and what you're doing with it.

If you're starting up a soft reminder campaign, then having a small buffer is fine. You won't upset people if you started to gently email 55 days after their purchase.

A hard-sell campaign or a win-back campaign with discounts might be more aggressively pursuing the sale. Starting it shortly after the Average Latency mark risks pissing people off or giving away too many discounts too soon.

A buffer in the range of 10% to 50% is probably a good start. Meaning if your Average Latency is 50 days, starting a defection campaign around day 55 through day 75 is good. (Note: you'd start it at that point, it might run for longer to say, day 100 or day 150)

In Repeat Customer Insights you can find your Average Latency in the Store Analysis. It's also listed and split out for each order number in the Order Sequencing Analysis but that's a more advanced view of Average Latency.

Eric Davis