marketing
RFM Analysis (Recency, Frequency, Monetary)
Customer segmentation based on Recency of last purchase, Frequency, and Monetary value.
Definition
RFM Analysis segments customers by three dimensions: Recency (how recently they last bought), Frequency (how often they buy), and Monetary value (how much they spend). Each customer gets a score (typically 1-5) on each dimension, producing segments like 'Champions' (high all three), 'At Risk' (high frequency/monetary but low recency), 'Lost' (low all three). RFM tells you which customers to invest in retaining, which to win back, which to graduate to higher-tier offers. Especially powerful for e-commerce and subscription businesses with frequent transactions.
In your business
- →Score the customer base quarterly - target retention and expansion efforts at high-value, at-risk segments
- →Lapsed high-monetary customers are the best win-back targets - they've shown they value the offer
- →Use RFM to allocate marketing budget by segment - not all customers deserve the same attention