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What is RFM segmentation?

Learn how Recency, Frequency and Monetary Value segmentation has been the standard for several decades.

The big challenge in database marketing is working out who to contact. This is called segmentation.

The standard method is called RFM where the database is split into segments according to Recency, Frequency and Monetary value. RFM can be done in many different ways, this is the standard format we use at Machine Labs.

The standard format will work for many of our clients but you can create your own custom segments if our structure isn't a good fit.

Recency

We have four recency segments:

Segment Details
Current 0-3 months since last order
Recent 3-6 months since last order
Lapsed 6-12 months since last order
Dormant More than 12 months since last order

 

Frequency

We have three frequency segments:

Segment Details
Single Buyer 1 order
Multi Buyer 2 or 3 orders
Regular Buyer 4 or more orders

 

Monetary Value

Finally we divide total lifetime value of the customers into three segments:

Segment Details
High Value Top third of Lifetime Value
Medium Value Middle third of Lifetime Value
Low Value Bottom third of Lifetime Value

Examples

Now that we have the RFM segments in place we could apply them in several ways:

  • A refer-a-friend programme would work best with the happiest customers so we could target Current and Recent Regular Buyers and Multi Buyers.
  • Retention offer flows could be aimed at any customer in the Lapsed segment.
  • Extra effort on Retention could go to High Value customers who are in the Lapsed segment.
  • Occasional Reactivation emails should go to customers who are Dormant.
  • News without offers should go to Active customers to avoid unnecessary discounting.