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Customer Segmentation With RFM Analysis

The document discusses customer segmentation using RFM (Recency, Frequency, Monetary) analysis. RFM analysis scores customers based on their recent purchase (Recency), how often they purchase (Frequency), and how much they spend (Monetary). These scores are used to segment customers into groups and develop targeted marketing strategies. For example, focusing on getting lapsed customers who haven't purchased in a long time (low Recency score) to make another purchase. RFM analysis provides insight into a customer's lifetime value and helps companies improve customer retention and acquisition.

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367 views3 pages

Customer Segmentation With RFM Analysis

The document discusses customer segmentation using RFM (Recency, Frequency, Monetary) analysis. RFM analysis scores customers based on their recent purchase (Recency), how often they purchase (Frequency), and how much they spend (Monetary). These scores are used to segment customers into groups and develop targeted marketing strategies. For example, focusing on getting lapsed customers who haven't purchased in a long time (low Recency score) to make another purchase. RFM analysis provides insight into a customer's lifetime value and helps companies improve customer retention and acquisition.

Uploaded by

satishjb29
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Customer Segmentation with RFM Analysis -Learn more about your customers

Learn more about your customers

Source: https://rittmananalytics.com/blog/2021/6/20/rfm-analysis-and-customer-segmentation-using-looker-dbt-and-google-bigquery

Hello Everyone!

In this article, I will talk about how to do customer segmentation with RFM analysis. First of all, what is RFM

Analysis? Let’s define this concept.

RFM Analysis.. What is it?

RFM analysis is a common segmentation approach for analyzing customer behavior based on data. It is a method for

determining the value of a customer. The RFM model entails assessing previous transactional data and applying that

information to segment clients based on their purchase history.


RFM experts often utilize it in database marketing and direct marketing, but it has recently gained a lot of traction and

is now commonly employed in eCommerce.

As a result, the key advantage of an RFM analysis is the ability to address each section individually, based on what you

know about customers based on their score on Recency, Frequency, and Monetary value indicators.

Let’s look at what each of these indicators implies now that we know RFM is a model that combines three important

indicators.

R — Recency
F — Frequency
M — Monetary

· Recency: What was the most recent purchase a customer made from you?

Keep the following questions in mind: In your sector, what is the customer lifecycle? What happened to those

consumers who hadn’t bought anything in a long time? Is there any way you can persuade them to return and place an

order?

·Frequency: How frequently does a consumer buy from you?

Keep the following questions in mind: In your industry, what is the required frequency rate? What about your

company? Is there anything you can do to get certain consumers to visit more frequently?

·Monetary: How much money does the customer spend on their purchase?Keep the following questions in

mind: What is the average order value for your company? What are the most significant deals you’ve completed so

far?

In the RFM analysis, after the Recency, Frequency and Monetary values are found, values between 1 and 5 are given

and customers are divided into segments. In the Recency score, 1 is the closest date and 5 is the farthest date.

So in this case a 1 is of higher importance than a 5 because the nearest date is 1. In the Frequency score, 1 represents

the least frequency and 5 represents the highest frequency. In the Monetary score, 1 represents the least money and 5

represents the most money.


5 means very good and 1 means very bad. Thanks to the table, which is widely used in RFM analysis, it is determined

which segment the customers are in.

RFM Analysis Chart

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