RFM Analysis
RFM (Recency, Frequency, Monetary) is a behavioral segmentation technique used to analyze customer value. While standard analysis might group customers by age or location, RFM groups them by actual purchasing behavior. It answers the question: "Who are your best customers, and who are you about to lose?" By analyzing transaction history, RFM transforms raw data into actionable customer personas. It evaluates three key metrics: Recency (how closely to the present a customer made a purchase), Frequency (how often they transact), and Monetary Value (how much they spend). Instead of viewing a customer base as a monolith, RFM creates dynamic clusters, identifying “VIP”, “Needing”, "Champions," "Hibernating" users, or "New Potential", allowing a business to treat different segments with distinct strategies.
