RFM-Model
What is the RFM-Model?
Champion ♥︎
4-5
4-5
Customers with the highest potential value and strong engagement.
Loyalist ☻
2-5
3-5
Customers who have a strong relationship with the brand and make regular purchases.
Potential Loyalist [☺︎]
3-5
1-3
Customers who have the potential to become loyal but need more nurturing.
New ⊕
4-5
0-1
Customers who are new to the brand and have made their first purchase.
Need Attention ‼
2-3
2-3
Customers who are showing signs of disengagement and need attention.
At Risk ☹︎
0-2
2-5
Customers who are at risk of churning and need immediate attention.
Hibernating ☾
1-2
1-2
Customers who have not made a purchase in a long time.
Lost ⊖
0-2
0-2
Customers who have churned and are no longer active.
What does RFM mean?
R → Recency : When was the last time a customer has purchased a product from your brand
F → Frequency : The numbers of times a customer has made a purchase.
M → Monetary Value : The total amount of money a customer has spent on your products or services.
How does it work?
Assign Scores: You give each customer a score for each of the RFM factors (Recency, Frequency, Monetary). Usually, you divide your customers into groups (e.g., top 20%, next 20%, etc.) and assign scores from high to low (e.g., 5 for the top group, 1 for the bottom group).
Combine Scores: You combine the individual RFM scores to create an overall RFM score or segment. For example, a customer with a recency score of 5, a frequency score of 4, and a monetary score of 5 might be in your "Champions" segment.
Create Segments: Based on the combined scores, you create customer segments. Here are some common segments:
Champion ♥︎: High scores in all three categories. These are your best customers.
Loyalist ☻: High frequency and monetary scores, but their recency might be a little lower.
Potential Loyalist [☺︎]: High recency and frequency scores, but their monetary value might be lower.
New ⊕: High recency score, but frequency and monetary scores might be lower
Need Attention ‼:
At Risk ☹︎: High monetary value, but their recency and frequency are declining.
Hibernating ☾:
Lost ⊖: Low scores in all three categories.
Targeted Marketing: Once you have your customer segments, you can tailor your marketing efforts to each group. For example:
Champions: You might offer them exclusive deals or early access to new products.
At-Risk Customers: You might send them a special offer to win them back.
Lost Customers: You might try a re-engagement campaign.
There are more targeted marketing strategies below this article.
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