Recency, Frequency, Monetary Value - RFM

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. Balance Reporting

    A report by a bank to a customer, normally a company or organization, ...
Related Articles
  1. Economics

    What's Involved in Customer Service?

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

    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. Professionals

    Introduction

    Prior to executing a customer’s order, the firm must open an account for the customer. The representative opening the account should try to obtain all vital financial information relating ...
  4. Professionals

    FINRA 5% Markup Policy

    FINRA has set a guideline to ensure that the prices investors pay and receive for securities are reasonably related to the market for the securities. As a general rule, FINRA considers a charge ...
  5. Professionals

    Customer Accounts

    Series 62
  6. Professionals

    Protection Of Customer Orders

    Customer orders are required to be protected by the firm at the price that is reportable to ACT. For example, if a customer placed an order to purchase 1000 shares of GHJK at 10.00 the firm would ...
  7. Professionals

    FINRA Conduct Rule 2310, 2330 and 2510

    FINRA/NASAA Series 26 Section 7 - FINRA Conduct Rule 2310, 2330 and 2510. In this section suitablity of recommendations, fair dealing with customers, suitability obligations to institutional ...
  8. Fundamental Analysis

    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.
  9. Professionals

    OPENING A NEW ACCOUNT

    Introduction Prior to opening an account for any new customer, a registered representative must complete and sign a new account form. Account ownership is divided into five main types: Individual ...
  10. Professionals

    A. Introduction: Customer Accounts

    Prior to opening an account for any new customer, a registered representative must complete and sign a new account form.
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. 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 >>
  6. 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 >>
Hot Definitions
  1. Return On Invested Capital - ROIC

    A calculation used to assess a company's efficiency at allocating the capital under its control to profitable investments. ...
  2. Law Of Demand

    A microeconomic law that states that, all other factors being equal, as the price of a good or service increases, consumer ...
  3. Cost Of Debt

    The effective rate that a company pays on its current debt. This can be measured in either before- or after-tax returns; ...
  4. Yield Curve

    A line that plots the interest rates, at a set point in time, of bonds having equal credit quality, but differing maturity ...
  5. Stop-Limit Order

    An order placed with a broker that combines the features of stop order with those of a limit order. A stop-limit order will ...
  6. Keynesian Economics

    An economic theory of total spending in the economy and its effects on output and inflation. Keynesian economics was developed ...
Trading Center