Recency, Frequency, Monetary Value (RFM)
Candlefocus EditorRecency, or R score, is a measure of how recently a customer interacted with the company - the longer ago a recent purchase was made, the lower the R score. This is important because customers that shop more recently are more likely to buy again because their purchase is still fresh in their mind.
Frequency, or F score, measures how often a customer visits the website, how frequently they make purchases, how often they open emails - or any other metric. Frequency is important to assess loyalty. Clients who have remained loyal and have interacted with a company often have a higher F score.
Monetary Value, or M score, is a measure of the amount of money a customer spends. Generally, a customer’s total spending is divided by the total number of transactions to get an average sale per transaction. High-value customers can be identified as those who are spending more money or have a greater number of purchases, or both.
RFM allows marketers to determine which customers and prospects are worthy of their time and effort so they can focus on their best customers. Segmenting customers into groups based on their RFM scores allows marketers to personalize and optimize the message. Furthermore, RFM analysis can be used to uncover trends in customers’ buying behavior, enabling marketers to develop better strategies for reaching out to and engaging their target customers.
RFM models can be used to identify and target customers who are most likely to repurchase from the same business in the near future. For instance, a business may decide to offer exclusive discounts and special offers to customers with a high R score. This can be an effective way for the business to increase customer loyalty and create a lasting connection with its customers.
By segmenting customers into RFM scores, marketers can select the most profitable customers that are most likely to respond to a given marketing message. This provides businesses with the opportunity to increase customer loyalty and gain a competitive advantage in the marketplace.
RFM analysis is a powerful tool that offers valuable insights into customer behavior and provides businesses with a better understanding of their high-value customers. By implementing RFM analysis into their marketing strategies, businesses can optimize their activities and maximize the return on their investments.