What do you understand by the term RFM analysis

Question

What do you understand by the term RFM analysis?

Answer 1

RFM analysis is a Business Intelligence (or BI) reporting system which ranks and analyzes customers based on their purchasing patterns. R signify to ‘how recently’ a customer placed an order, F signify to ‘how frequently’ the customer orders, and M signify to ‘how much money’ the customer spends. Usually, the customers are ranked into ‘20%’ groups and assigned a number to present their ranking. Therefore 1 means top 20%, 2 the next 20% and so on. In this system a score of 1 is top and a score of 5 is bad. Therefore a customer with an RFM score = 1 5 1 would be one who has ordered newly, does not order frequently, and who makes large purchases.