Whether you go through paper files intuitively or invest in database or contact management software, there’s some critical information you need to collect. First, you need each customer’s name and address. Then you need to keep track of their purchases. With this information, you can find your most valuable customers by using a formula that industry insiders call “RFM” - Recency, Frequency and Monetary Value. In other words, you simply need to keep track of:

1. How recently a customer bought
Recency is a very hot measure of a customer’s value. It tells you how ready a customer is to buy. The recent buyer of flowers may have a new girlfriend and be ready to be marketed to regularly. A car buyer, on the other hand, won’t be ready to buy another for at least three years. Recency helps you decide when to send mail.

2. How frequently a customer buys
Does Ms. Mitchell buy from you five times a year? You might want to look for something to bring her in more often. Does Mr. Herbert buy from you four times a month? He obviously likes what you have to sell and your competitors would love to win his business. He may need special care.

3. How much a customer spends
How much do Ms. Mitchell and Mr. Herbert spend? You may find that Ms. Mitchell spends more money in her five annual trips than Mr. Herbert spends in his weekly visits. Look at what your customers are buying and build on it.

4. Putting it all together
Go through your data, look for patterns, and create promotions, offers and services to increase business from your customers. Does Ms. Mitchell buy only at the height of the season? Maybe you can mail her a special offer during the “off-season.” Does Mr. Herbert always buy socks, but never shoes? Offer him free socks with a pair of shoes. There’s no limit to how you can grow your business with a database. But first you have to have one.

5. Capture this data and set it free to grow your business
Just a few years ago, database marketing was only for the largest of companies. The computer hardware and software were so expensive and complicated, only sophisticated programmers could operate them. The rules have changed. There are now inexpensive database and contact management programs that almost anyone can use. Moreover, simply organizing your paper “customer files” and scanning them for ideas is a form of database marketing. And it can give you a competitive edge.

Remember, you simply need to keep track of the above information then use it to know when, how much and to whom to send your mail.