Recency, Frequency, Monetary Value - RFM
Categories: Metrics
You’re a firm. You sell mugs where people can print swear words on them.
You want to sell more mugs. You can either: a) get newbs to buy from you (hard...plus you’re already always trying to do that) or b) get already existing customers to buy another one (much easier, says data).
But how do you know which of your customers are the cream of the crop? You take a look at their RFM: their recency, frequency, and monetary value.
Recency: how recent their purchase was. Out of sight, out of mind. Customers who bought a mug from you five years ago may only have a vague recollection, compared to the guy who made the best gift ever last week.
Frequency refers to how often the customer buys from you. Some customers are ordering from you pretty often since they’re killer gifts, while other people just ordered once. And a few order in bulk...yessss.
Monetary value refers to how much they spend. You don’t sell too many of them since they’re more novelty than useful, but your mega-mugs are much higher priced than your normal mugs. How big are we talking? Ask Ajit Pai or John Oliver...they know. Customers who buy a bunch of mega-mugs will be spending more than customers who buy the same number of normal-sized mugs.
RFM analysis helps companies target their customers who are easiest to squeeze money out of. The ones who are happy customers...buying recently, frequently, and...in large volume. Mugs, mugs, and more mugs.
