RFM Analysis
An RFM analysis is used to gain insight into an organization's most valuable customers. This involves zooming in on the Recency, Frequency and Monetary Value of an existing customer. The RFM analysis is a method frequently used by entrepreneurs. The analysis can be performed based on one's own data and the results are easy to interpret. In addition, the RFM analysis is a very effective method for maximizing the value and potential of existing customers. A cost-effective choice is thus made. After all, attracting new customers can weigh heavily on marketing expenditures.
The RFM analysis consists of three components:
- Recency. When was the last time a specific customer made a purchase?
- Frequency. How often does a customer make purchases?
- Monetary. How much revenue did the customer bring you?
The rationale behind conducting an RFM analysis that customers are assigned a score for all three components. Customers who score high on all three components are among the most valuable customers. In addition to these loyal customers, customers who need attention or seem lost can also be identified.
Performing an RFM analysis is interesting to grow as a company by getting more return from the existing customer base and to be able to deploy marketing resources in the most effective way. Indeed, the analysis can form the basis for targeted communication to specific customers or customer groups and even adjust the product offering accordingly.
