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RFM is a database marketing technique originally developed and used in direct marketing and retail industry. This approach can be used in any industry to support marketing and sales decisions for developing marketing and sales strategies and tactics. RFM tool is used for analyzing customer behavior and identifying customer groups with similar behaviors. Different customer groups or RFM segments behave differently on different marketing approaches such as promotions and advertising so RFM helps marketing managers develop customized marketing strategies for different RFM segments. RFM also helps with identifying who are the best / most profitable customers and who are the customers who are more likely to respond to a certain marketing strategy. RFM Analysis is a simple quantitative approach and gives marketing managers business insight into their customer base.

How RFM Works?

RFM ranks all your customers based on three variables:

1. R – Recency – when was the last time customers purchased from us

2. F - Frequency – how often customers purchase from us

3. M – Monetary – how much customers spend with us

For example, each of these three variables can be divided into five groups and marketing managers can analyze customer behavior for the last 12 months. So R value of 5 would be assigned to a customer who purchased in the last 73 days and R value of 1 would be assigned to a customer who last purchased more then 292 days ago. Similar to R values, the F and M values would be assigned based on how many times a customer purchased in the last 12 months and how much they spent for the last 12 months. Generally RFM segments with higher RFM scores are more profitable and loyal to the company. The best customers are those who are more likely to purchase again and those are customers with higher RFM values. For example RFM customer segment with score of 555 means that they purchased recently, they buy often, and they have big orders. Each customer would be assigned a 3-digit value starting from 111 to 555.

Example:

Customer Data for RFM Analysis: 

Customer      Days since last purchase          Purchases        Amount Spent

ABC Consulting            35                                  6                      $12,000        

DesignCom Inc.            68                                  4                        $5,000        

Timmons Furniture        12                                  9                      $32,000        

RFM Scores assigned to each customer:

Customer                   R                                  F                            M

ABC Consulting           5                                   4                            3

DesignCom Inc.           5                                   3                            2

Timmons Furniture       5                                   5                            4

RFM Codes:

ABC Consulting                543    

DesignCom Inc.                532    

Timmons Furniture            554    

RFM for Excel

RFM for Excel is simple RFM application which allows users to create RFM analysis/report with a click of a button in Microsoft Excel. LEARN MORE

BCG Matrix, Perceptual Mapping / Positioning Maps, Marketing Metrics and Dashboard Report, Benchmarking, Radar Charting, Performance Gap Analysis, Pareto Analysis and Pareto Charting, Ansoff Matrix, Trend Chart, GE / McKinsey Matrix. All marketing tools for Microsoft Excel have been developed for marketing managers and are easy-to-use templates. You can create your reports and perform analysis with a click of a button.