RFM is a data analysis technique used in marketing and customer relationship management to

segment and analyze customers based on their recent purchasing behavior. RFM stands for Recency,
Frequency, and Monetary Value. These three factors are used to assess and categorize customers in
order to understand their value and tailor marketing strategies to better serve their needs. Here's a
breakdown of each component:

Recency (R): This factor assesses how recently a customer has made a purchase. It's often measured
in terms of the number of days, weeks, or months since the customer's last transaction. Customers
who have made a purchase more recently are typically considered more engaged or active.

For example, a customer who made a purchase in the last 7 days would have a higher recency score
than a customer who made a purchase 60 days ago.

Frequency (F): Frequency evaluates how often a customer makes a purchase. It's calculated by
counting the number of transactions or interactions with the business within a specific time frame.

For instance, a customer who makes a purchase every week is a high-frequency customer, while
someone who shops once a year has a lower frequency.

Monetary Value (M): Monetary Value measures the total amount a customer has spent during a
given period. It helps determine the value of each customer based on their total spending.

Customers who have spent more money are considered higher-value customers.

By combining these three components, businesses can create an RFM score for each customer. The
scores for recency, frequency, and monetary value can be assigned on a scale (e.g., 1 to 5), and these
scores can be combined into a single score. For example, a customer with a recency score of 4, a
frequency score of 3, and a monetary value score of 5 might have an RFM score of "435."

The RFM analysis results in customer segments that help businesses understand and target their
customer base more effectively. For example:

Champions: These are customers with high recency, frequency, and monetary value scores. They are
the most valuable and engaged customers.

Loyal Customers: They have high recency and frequency but might not spend as much as the
"Champions."

At-Risk Customers: These customers have a good recency score but are showing reduced frequency
or spending, indicating a potential drop in engagement.
New Customers: These customers have made recent purchases but might not have reached high
frequency or spending levels yet.

Inactive Customers: These are customers with low scores across all three dimensions. They haven't
made a purchase in a while, and they may require reactivation efforts.

RFM analysis helps businesses tailor marketing strategies, promotions, and engagement efforts to
better serve each customer segment, thereby improving customer retention, increasing sales, and
optimizing marketing spending.