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Figure 4 Recency-Frequency-Monetary Value (RFM) Matrix

Figure 4 Recency-Frequency-Monetary Value (RFM) Matrix. Hi recency. Hi monetary value. Hi frequency. Example #1 RFM. Scoring scheme: Buy interval frequency total buy <1 month = 5 >40 = 5 >$50k = 5 1-3 months = 4 30-40 = 4 $20k-$50k = 4 3-6 months = 3 20-29 = 3 $10k-$20k = 3

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Figure 4 Recency-Frequency-Monetary Value (RFM) Matrix

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  1. Figure 4Recency-Frequency-Monetary Value (RFM) Matrix Hi recency Hi monetary value Hi frequency

  2. Example #1 RFM Scoring scheme: Buy interval frequency total buy <1 month = 5 >40 = 5 >$50k = 5 1-3 months = 4 30-40 = 4 $20k-$50k = 4 3-6 months = 3 20-29 = 3 $10k-$20k = 3 6-9 months = 2 10-19 = 2 $5k-$10k = 2 >9 months = 1 <10 = 1 <$5k = 1

  3. Example #1 RFM Customer ID last buy* frequency total $ RFM score A 05/08 12 6k 422 422 F B 01/08 18 9k 322 322 H C 11/07 35 40k 244 442 D D 07/08 1 1k 511 511 C E 01/07 6 5k 122 211 A F 03/08 40 90k 355 553 B G 05/07 5 2k 111 111 E H 07/08 20 9k 532 532 G *vs. now, 07/08 Most valuable Rank low= recovery Convention to rearr

  4. Example #2 RFM 1) Data preparation Old variable recoded (or create a new variable) Recency If then: Last order placed w/in past 3 months: 20 points Last order w/in past 6 months 10 Last order w/in past 9 months 5 Last order w/in past year 3 Last order w/in past 2 years 1 Frequency #purchases over past 2 years x 4 points, max = 20points (i.e., if #purchases x 4 >20, reset to =20) Monetary Value $spent over past 2 years x .10 (max = 20 points) 2) Weights (judgment) Recency score: 5 Frequency 3 Monetary value 2 3) Multiple variables by weights and sum to get “final weighted RFM scores” for targeting good customers

  5. Example #2 RFM Step 1) Data preparation The old variables are recoded (creating new vars) Recency If then: Last order placed w/in past 3 months: 20 points Last order w/in past 6 months 10 Last order w/in past 9 months 5 Last order w/in past year 3 Last order w/in past 2 years 1 Frequency #purchases over past 2 years x 4 points, max = 20points (i.e., if #purchases x 4 >20, reset to =20) Monetary Value $spent over past 2 years x .10 (max = 20 points) Step 2) Weights (judgment) Recency score: 5 Frequency 3 Monetary value 2 Step 3) Multiple variables by weights and sum to get “final weighted RFM scores” for targeting good customers

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