Glossary
What is RFM analysis?
RFM segments customers on three axes: how recently they bought, how often they buy, and how much they spend. It is old, simple, and consistently outperforms more elaborate methods for small businesses, because all three inputs come from your transaction records.
Also called: Recency frequency monetary.
The most useful piece of customer analysis a small business can do without buying anything.
The three axes
Recency: how long since their last visit. Frequency: how often they come. Monetary: how much they spend. Score each into bands and the segments fall out.
The segment that matters most
High frequency, high monetary, poor recency. These are your best customers, and they have stopped coming. That group is both the most valuable and the most recoverable, and almost nobody looks for it.
Why it beats fancier methods
Every input is already in your records. There is nothing to instrument and nothing to model, so it is available today rather than after a project.
Related terms
- Cohort retentionTracking how long groups of customers who joined together keep coming back.
- ChurnCustomers who stop coming back over a given period.
- Visit frequencyHow often a customer comes back over a given period.
- Customer lifetime valueThe total margin a customer generates over the whole relationship.