DEFINITION of 'Recency, Frequency, Monetary Value - RFM'

A marketing analysis tool used to identify a firm's best customers by measuring certain factors. The RFM model is based on three quantitative factors:


Recency - How recently a customer has made a purchase
Frequency - How often a customer makes a purchase
Monetary Value - How much money a customer spends on purchases


RFM analysis often supports the marketing adage that "80% of business comes from 20% of the customers."

BREAKING DOWN 'Recency, Frequency, Monetary Value - RFM'

Nonprofit organizations have relied on RFM analysis to target likely donors, as people who have made donations in the past are likely to make additional donations. RFM analysis classifies customers with a number ranking system for each of the RFM factors. The "best" customer would receive a top score in each of the three categories score, this allows comparison between potential contributors or customers. 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.

RELATED TERMS
  1. Customer

    An individual or business that purchases the goods or services ...
  2. Customer Service

    The process of ensuring customer satisfaction with a product ...
  3. Customer Relationship Management ...

    The principles, practices, and guidelines that an organization ...
  4. Mass Customization

    The process of delivering wide-market goods and services that ...
  5. Customer's Loan Consent

    An agreement signed by the customer of an investment firm. The ...
  6. Customer Information File (CIF)

    A computerized file that stores all pertinent information about ...
Related Articles
  1. Small Business

    What's Involved in Customer Service?

    Customer service is the part of a business tasked with enhancing customer satisfaction.
  2. Insights

    How Big Data Has Changed Marketing

    Big data has enabled marketers to enhance their customer engagement and customer retention strategies by providing insight into behavior and thoughts.
  3. Investing

    The Importance Of Analyzing Accounts Receivable

    While investors often focus on revenues, net income, and earnings per share, they should not overlook the importance of analyzing accounts receivable.
  4. Small Business

    Qualitative Analysis: What Makes A Company Great?

    To understand the qualities that make a great company, investors must dig deep into "soft" metrics.
  5. Small Business

    Understanding Marketing

    Marketing includes all of the activities of a company associated with buying and selling a product or service.
  6. Small Business

    How Can Companies Increase Market Share?

    Companies that increase their market share enjoy a competitive advantage. They receive better prices from suppliers, and they’re able to produce goods faster.
  7. Small Business

    What are Acquisition Costs?

    A company can recognize acquisition costs as those costs used to buy property and equipment.
  8. Small Business

    Small Business: Speed Up Receivables To Avoid A Cash Crunch

    Waiting for customers to pay can be a losing game. Look to factoring for quicker cash.
  9. Small Business

    How To Make $1 Million In Your Small Business

    Make your dream a reality. Find out what you can do to reach this financial goal.
  10. Financial Advisor

    Be A One-Stop Shop For Your Clients

    Offering comprehensive financial services can bring in business, but coordination is the key to success.
RELATED FAQS
  1. How does a customer base dictate goodwill?

    Find out how a customer base dictates the value of the goodwill by providing a ready market for its products and spreading ... Read Answer >>
  2. Is good customer service something to look for in a company in which I am considering ...

    Learn about the importance of customer service when deciding whether to invest in a stock. Good customer service can ensure ... Read Answer >>
  3. How does a merger affect the customer?

    Learn how a merger may affect customers of the industry. The effects of mergers may be positive or negative, but there's ... Read Answer >>
  4. What does it mean when they refer to the churn rate of a telecommunications company?

    Learn what companies in the telecommunications industry mean when they refer to a churn rate, and discover tactics companies ... Read Answer >>
  5. Can companies insure their accounts receivable?

    Understand what credit insurance is and how it protects companies against payment problems they may encounter in trying to ... Read Answer >>
  6. How can small businesses manufacture demand?

    Create demand for a small business product or service by focusing on the brand and market. Continue to learn offer excellent ... Read Answer >>
Hot Definitions
  1. Magna Cum Laude

    An academic level of distinction used by educational institutions to signify an academic degree which was received "with ...
  2. Cover Letter

    A written document submitted with a job application explaining the applicant's credentials and interest in the open position. ...
  3. 403(b) Plan

    A retirement plan for certain employees of public schools, tax-exempt organizations and certain ministers. Generally, retirement ...
  4. Master Of Business Administration - MBA

    A graduate degree achieved at a university or college that provides theoretical and practical training to help graduates ...
  5. Liquidity Event

    An event that allows initial investors in a company to cash out some or all of their ownership shares and is considered an ...
  6. Job Market

    A market in which employers search for employees and employees search for jobs. The job market is not a physical place as ...
Trading Center