RFM analysis

RFM analysis groups customers by recency, frequency and monetary value: how recently they bought, how often they bought and how much they spent. It assesses distinct aspects of past purchasing rather than customer revenue alone.[1] Define the period, scoring direction and any boundaries for each component before comparing segments.

A store might distinguish recent frequent buyers, occasional buyers placing large orders and previously valuable customers who have not returned for some time. Choose a relevant question or message for each group rather than offering everyone the same discount. RFM describes historical purchases and omits other information such as product type and demographics.[1] A high spending score also does not prove the customer produces the highest margin after returns and service costs.