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What is RFM analysis and how do I use it?
RFM scores each customer on recency (how recently they bought), frequency (how often) and monetary value (how much they spend). Combining the three produces simple segments such as champions, loyal, at risk and lost. It needs only transaction data and is easy to explain, making it a strong starting point.
Typical steps are to calculate the three measures for each customer, rank them into bands such as quintiles, and combine them into groups. Each group gets a tailored action, for example a thank-you for top customers or a win-back offer for lapsing ones.
Limits: it ignores product type and margin, treats all spend equally, and band cut-offs are arbitrary. Adapt the time windows to your purchasing cycle, since a monthly grocery buyer and a once-a-year equipment buyer behave very differently.
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