R - Recency
1 R-Value is assigned to customers who are considered to be "Lost".
2, 3, 4, and 5 R-Values are set based on 25-percentiles of Active Customers.
The least recent 25% are given a 2 R-Value and the most recent 25% are given a 5 R-Value.
F - Frequency
1 F-Value = Customers who have only purchased one time.
2, 3, 4, and 5 F-Values are set based on 25-percentiles of Active Customers.
The least frequent 25% are given a 2 F-Value and the most frequent 25% are given a 5 F-Value.
M - Monetary
M-Values are automatically set based on groups of 20-percentiles.
The group of customers who have spent the least are given a M-Value of 1.
The group of customers who have spent the most are given a M-Value of 5.
RFM analysis is a marketing technique used to quantitatively rank and group customers based on the recency, frequency, and monetary total of their recent transactions to identify the best customers and perform targeted marketing campaigns. The system assigns each customer numerical scores based on these factors to provide an objective analysis. RFM analysis is based on the marketing adage that "80% of your business comes from 20% of your customers."