what is recency frequency monetary value rfm 
recency frequency monetary value rfm is a model used in marketing analysis that segments a company s consumer base by their purchasing patterns or habits in particular it evaluates customers recency how long ago they made a purchase frequency how often they make purchases and monetary value how much money they spend rfm is then used to identify a company s or an organization s best customers by measuring and analyzing spending habits to improve low scoring customers and maintain high scoring ones understanding recency frequency monetary valuethe rfm model is based on three quantitative factors rfm analysis numerically ranks a customer in each of these three categories generally on a scale of 1 to 5 the higher the number the better the result the best customer would receive a top score in every category these three rfm factors can be used to reasonably predict how likely or unlikely it is that a customer will do business again with a firm or in the case of a charitable organization make another donation the concept of recency frequency monetary value rfm is thought to date from an article by jan roelf bult and tom wansbeek titled optimal selection for direct mail published in a 1995 issue of marketing science 1rfm analysis often supports the marketing adage that 80 of business comes from 20 of the customers the more recently a customer has made a purchase with a company the more likely they will continue to keep the business and brand in mind for subsequent purchases compared with customers who have not bought from the business in months or even longer periods the likelihood of engaging in future transactions with recent customers is arguably higher such information can be used to get recent customers to revisit the business and spend more in an effort not to overlook lapsed customers marketing efforts might be made to remind them that it s been a while since their last transaction while offering them an incentive to resume buying the frequency of a customer s transactions may be affected by factors such as the type of product the price point for the purchase and the need for replenishment or replacement if the purchase cycle can be predicted for example when a customer needs to buy more groceries marketing efforts may be directed toward reminding them to visit the business when staple items run low monetary value stems from how much the customer spends a natural inclination is to put more emphasis on encouraging customers who spend the most money to continue to do so while this can produce a better return on investment roi in marketing and customer service it also runs the risk of alienating customers who have been consistent but may not spend as much with each transaction nonprofit organizations in particular have relied on rfm analysis to target donors as people who have been the source of contributions in the past are likely to make additional gifts significance of recency frequency monetary valuerfm analysis allows a comparison between potential contributors and clients it gives organizations a sense of how much revenue comes from repeat customers vs new customers and which levers they can pull to try to make customers happier so they become repeat purchasers despite the useful information that is acquired through rfm analysis firms must take into consideration that even the best customers will not want to be over solicited and the lower ranking customers may be cultivated with additional marketing efforts it works as a snapshot of the clientele and as a tool to prioritize nurturing but it should not be taken as a license to simply do more of the same old same old sales techniques 