RFM Model (Recency, Frequency, Monetary Value)
Originally published: 16/04/2018 14:48
Publication number: ELQ-38459-1
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RFM Model (Recency, Frequency, Monetary Value)

The objective of this model is to estimate the lifetime value of a customer or of a group of customers.

To estimate the value of a customer this is probably the simplest model you will find. Despite its simplicity, its also known for its reliability which is based upon three things:

-Recency: the more recently the transaction has taken place, the more likely the client is to accept a further interaction

-Frequency: the customer's value increases the more that customer buys from the company

-Monetary value: the customer's total value also depends on the amount of money they have spent within a given time period

Generally, the above variables are converted into comparable indicators and summed to attain a total value indicator. Different weights can also be defined for each indicator.

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1 RFM Model Template

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