Who are our best customers?

This is a simple and intuitive technique for categorizing your customers based on their past purchase behavior. RFM stands for Recency, Frequency, and Monetary value. To conduct this analysis you calculate how many days since they last purchased from you (recency), how many orders or transactions they've completed total (frequency) and the total amount that customers have spent with you (monetary value). Then you categorize customers based on the quartile they fall into in each category. For example an RFM class of 1-1-1 means the customer is in the top 25% of each category: a top customer. A class of 2-1-1 might indicate that this was one of your best customers, but they haven't purchased recently, because they're only in the 2nd quartile for recency.

This information is invaluable for targeting in CRM campaigns. You can use these labels to find your best customers, identify people who used to spend a lot but might be slipping away, and customers who bought recently but haven't made many repeat purchases. Then you can conduct a VIP, winback or upsell campaign depending on what bucket they fall into.