RFM Analysis explained - Web

RFM Analysis is a powerful tool used in customer relationship management to evaluate and segment customers based on their purchasing behaviour. The acronym RFM stands for Recency, Frequency, and Monetary value and helps businesses understand their customers' buying habits and identify the most valuable ones.

• Recency: This measures how recently a customer has made a purchase. Customers who have purchased more recently are considered more likely to buy again compared to those who haven't purchased in a while.
• Frequency: This measures how often a customer makes a purchase within a specific period. Customers who purchase more frequently are typically more loyal and engaged with the business.
• Monetary Value: This measures the total amount of money a customer has spent. Customers who spend more are often more valuable to the business.

In Skynamo, RFM Analysis is used to segment customers into different categories based on their RFM scores. Each customer is assigned a score for Recency, Frequency, and Monetary value, and these scores are combined to create an overall RFM score. The score places the customers into categories, helping to identify the best customers, those who need attention, and those who may be at risk. 

The RFM Analysis page, shown below, provides a visual of the categories using a treemap chart and contains two data tables - a segment breakdown per category and a detailed list of customers and their order history within a selected category:

The treemap chart provides a hierarchical view of your data and displays categories by colour and proximity. The tree branches are represented by rectangles, each sub-branch as a smaller rectangle. These charts are good for comparing proportions within the hierarchy, making it easy to spot patterns. By clicking on a rectangle in the treemap, it will load the customers making up that category, in the table below. A useful description of the category is also provided. Both data tables are available for download to CSV or Excel for further analysis by clicking on the three dots on the top right of the table and selecting the desired option.

By analysing these segments, businesses can tailor their marketing strategies and customer engagement efforts to target specific groups more effectively. For example, high-value customers can be rewarded with special offers and loyalty programs, while customers with lower engagement can be targeted with reactivation campaigns.

RFM Analysis provides valuable insights that help businesses optimise their customer relationship management and drive growth.

For more in depth explanation on RFM Analysis and this tool, where you can download guides and watch a short video, please see the RFM Analysis page on our website.