# Understanding RFM: Recency, Frequency, and Monetary Value in Marketing

![Recency, Frequency, Monetary Value (RFM): A marketing analysis tool used to identify a firmâs best clients based on the nature of their spending habits.](https://www.investopedia.com/thmb/UeN7kNUcM_6khGbXLLVaNrO5spk=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/rfm-recency-frequency-monetary-value.asp_Final-6e3b406a44b2462b97a11da40e93a695.png)

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## What Is Recency, Frequency, Monetary Value (RFM)?

Recency, frequency, monetary value (RFM) is an analysis tool that businesses use to group [customers](https://www.investopedia.com/terms/c/customer.asp) based on how recently they made a purchase, how often they buy, and how much they spend. Companies score each customer in these areas, helping them spot the most valuable ones. RFM was developed in the 1990s and has proven to be an effective customer behavior and [marketing](https://www.investopedia.com/terms/m/marketing.asp) guide that helps increase sales. It also supports the 80/20 rule, which shows that most business comes from a small group of top customers.

### Key Takeaways

*   RFM analysis helps identify a firm's top customers by evaluating spending habits in recency, frequency, and monetary value.  
    
*   Customers are scored from 1 to 5 in each category to rank them from worst to best.  
    
*   RFM can predict which customers are likely to make future purchases and help convert occasional buyers into regular ones.  
    
*   The analysis supports the principle that 80% of business revenue typically comes from the top 20% of customers.  
    
*   Nonprofits use RFM to identify potential recurring donors based on their past contributions.

## Analyzing Customer Engagement Through RFM Factors

The RFM model is based on three quantitative factors:

1.  **Recency**: How recently a customer has made a purchase
2.  **Frequency**: How often a customer makes a purchase
3.  **Monetary value**: How much money a customer spends on purchases

RFM analysis numerically ranks a customer in each of these three categories, generally on a scale of 1 to 5 (the higher the number, the better the result). The “best” customer would receive a top score in every category.

These three RFM factors can be used to reasonably predict how likely (or unlikely) it is that a customer will do business again with a firm or, in the case of a charitable organization, make another donation.

The concept of recency, frequency, monetary value (RFM) is thought to date from an article by Jan Roelf Bult and Tom Wansbeek, titled “Optimal Selection for Direct Mail,” published in a 1995 issue of _Marketing Science_.

> **Tip**
>
> RFM analysis often supports the marketing adage that “80% of business comes from 20% of the customers.”

### Evaluating Customer Recency: A Key to Future Engagement

The more recently a customer has made a purchase with a company, the more likely they will continue to keep the business and [brand](https://www.investopedia.com/articles/financial-theory/11/branding-ultimate-economic-moat.asp) in mind for subsequent purchases. Compared with customers who have not bought from the business in months or even longer periods, the likelihood of engaging in future transactions with recent customers is arguably higher.

Such information can be used to get recent customers to revisit the business and spend more. In an effort not to overlook lapsed customers, [marketing efforts](https://www.investopedia.com/terms/m/marketing-plan.asp) might be made to remind them that it’s been a while since their last transaction, while offering them an incentive to resume buying.

### Monitoring Purchase Frequency: Understanding Customer Loyalty

The frequency of a customer’s transactions may be affected by factors such as the type of product, the price point for the purchase, and the need for replenishment or replacement. If the purchase cycle can be predicted—for example, when a customer needs to buy more groceries—marketing efforts may be directed toward reminding them to visit the business when staple items run low.

### Assessing Monetary Value: Enhancing Customer Retention

Monetary value stems from how much the customer spends. A natural inclination is to put more emphasis on encouraging customers who spend the most money to continue to do so. While this can produce a better [return on investment (ROI)](https://www.investopedia.com/terms/r/returnoninvestment.asp) in marketing and customer service, it also runs the risk of alienating customers who have been consistent but may not spend as much with each transaction.

> **Important**
>
> Nonprofit organizations, in particular, have relied on RFM analysis to target donors, as people who have been the source of contributions in the past are likely to make additional gifts.

## The Strategic Importance of RFM Analysis in Customer Management

RFM analysis allows a comparison between potential contributors and clients. It gives organizations a sense of how much revenue comes from [repeat customers](https://www.investopedia.com/terms/r/repeat-sales.asp) (vs. new customers), and which levers they can pull to try to make customers happier so they become repeat purchasers.

While RFM analysis provides useful data, firms should avoid over-soliciting top customers and consider nurturing lower-ranking ones. It works as a snapshot of the clientele and as a tool to prioritize nurturing, but it should not be taken as a license to simply do more of the same old, same old sales techniques.

## Why Is the Recency, Frequency, Monetary Value (RFM) Model Useful?

The recency, frequency, monetary value (RFM) model is based on those three quantitative factors. Each customer is ranked in each of these categories, generally on a scale of 1 to 5 (the higher the number, the better the result). The higher the customer ranking, the more likely it is that they will do business again with a firm. Essentially, the RFM model corroborates the marketing adage that “80% of business comes from 20% of the customers.”

## What Is Recency in the RFM Model?

The recency factor is based on the notion that the more recently a customer has made a purchase with a company, the more likely they will continue to keep the business and [brand](https://www.investopedia.com/terms/b/brand-loyalty.asp) in mind for subsequent purchases. This information can be used to remind recent customers to revisit the business soon to continue meeting their purchase needs.

## What Is Frequency in the RFM Model?

The frequency of a customer’s transactions may be affected by factors such as the type of product, the price point for the purchase, and the need for replenishment or replacement. Predicting this can assist marketing efforts directed at reminding the customer to visit the business again.

## What Is Monetary Value in the RFM Model?

Monetary value stems from how much the customer spends. A natural inclination is to put more emphasis on encouraging customers who spend the most money to continue doing so. While this can produce a better return on investment (ROI) in marketing and customer service, it also runs the risk of alienating customers who have been consistent but have not spent as much with each transaction.

## The Bottom Line

The RFM model is a marketing tool that helps businesses group customers based on how recently and often they buy, and how much they spend. It uses a simple scoring system from 1 to 5 for each factor (recency, frequency, and monetary value), with higher scores showing more valuable customers. These scores help predict buying behavior, guide marketing efforts, and improve customer retention. While high-scoring customers deserve focused attention, businesses can also use RFM insights to better engage lower-scoring customers and turn them into loyal buyers, ultimately boosting overall revenue.

> **Article Sources**
>
> 1.  Jan Roelf Bult and Tom Wansbeek, via ResearchGate. “[Optimal Selection for Direct Mail](https://www.researchgate.net/publication/227442110_Optimal_Selection_for_Direct_Mail).” _Marketing Science_, Vol. 14, No. 4 (November 1995), Pages 378–394.