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.