RFM Analysis

Overview

RFM segments customers based on three behavioral dimensions: Recency (when they last bought), Frequency (how often they buy), and Monetary (how much they spend). It converts raw transaction data into actionable customer segments for targeted marketing.

Framework

IRON LAW: RFM Uses ACTUAL Behavior, Not Demographics

RFM is behavioral segmentation — it classifies by what customers DO,
not who they ARE. A 25-year-old and a 65-year-old in the same RFM segment
should receive the same treatment. Never mix RFM with demographic
assumptions.

The Three Dimensions