Business Knowledge

Customer Analytics: Applied Frameworks

Knowing Your Customers: RFM & CLV in a Nutshell

Use these two powerful tools to understand your customers better.

1. RFM (Recency, Frequency, Monetary Value)

  • R (Recency): When was their last purchase? (Score 5 for recent, 1 for long ago)
  • F (Frequency): How often do they buy? (Score 5 for frequent, 1 for rare)
  • M (Monetary): How much do they spend? (Score 5 for high spend, 1 for low spend)

Example Segments:

  • 555 = Champions: Reward them! Ask for referrals.
  • 111 = Lost Customers: Re-engage with a win-back offer or let them go.
  • 333 = Potentials: Nurture them to become loyal.

2. CLV (Customer Lifetime Value)

  • What it is: The total profit you expect from a customer over their entire relationship with your business.
  • Why it matters: It tells you how much you can afford to spend to acquire a new customer, and how much you should invest to retain a high-value customer.

Action Steps:

  • Calculate RFM scores for your top 100 customers.
  • Estimate your average CLV.
  • Develop one specific marketing action for your “Champions” and one for your “At-Risk” customers.