RFM stands for Recency,Frequency and Monetary
Recency: How much time has elapsed since a customer’s last activity or transaction with the brand? Activity is usually a purchase, although variations are sometimes used, e.g., the last visit to a website or use of a mobile app. In most cases, the more recently a customer has interacted or transacted with a brand, the more likely that customer will be responsive to communications from the brand.
Frequency: How often has a customer transacted or interacted with the brand during a particular period of time? Clearly, customers with frequent activities are more engaged, and probably more loyal, than customers who rarely do so. And one-time-only customers are in a class of their own.
Monetary: Also referred to as “monetary value,” this factor reflects how much a customer has spent with the brand during a particular period of time. Big spenders should usually be treated differently than customers who spend little. Looking at monetary divided by frequency indicates the average purchase amount – an important secondary factor to consider when segmenting customers.
Segmentationn Levels:
- Champion Customer: bought recently, buy often and spends the most
- Loyal/Committed: spend good money and often, responsive to promotions
- Potential: recent customers, but spent a good amount and bought more than once
- Promising: recent shoppers, but haven’t spent much
- Requires Attention: above average recency, frequency, and monetary values; may not have bought very recently though
- Demands Activation: below average recency, frequency, and monetary values; will lose them if not reactivated
- Can’t Lose them: made biggest purchases, and often but haven’t returned for a long time
