RFM Segmentation groups customers based on their Recency, Frequency, and Monetary value to determine which segments are most likely to respond to marketing efforts.
Formula:
- Recency (R): How recently a customer made a purchase
- Frequency (F): How often they purchase
- Monetary (M): How much they spend
Example:
A customer who bought last week (high recency), buys monthly (high frequency), and spends $300 per order (high monetary) scores highest.
Why Does RFM Segmentation Matter?
- Helps identify loyal vs at-risk customers
- Enables lifecycle marketing
- Drives retention and upselling efforts
Steps to Build RFM Segments:
- Assign scores (1-5) for R, F, and M
- Combine scores to categorize customers (e.g., 555 = top tier)
- Create campaigns tailored to each tier
FAQs:
How is RFM different from other segmentation methods?
It focuses purely on transactional behavior.
Can RFM be automated?
Yes, with most analytics and CDP tools.
What is a good RFM score?
Depends on your distribution; higher scores indicate more engaged customers.
Can RFM inform product recommendations?
Yes, by tying frequent buyers to trending or high-value items.
Take Action
Use Netcore Cloud’s Ecommerce Marketing Platform to implement effective RFM segmentation and maximize CLTV.
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