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RFM is widely used by direct marketers of all types for selecting which customers to target offers to. The fundamental premise underlying RFM analysis is that customers who have purchased recently, have made more purchases and have made larger purchases are more likely to respond to your offering than other customers who have purchased less recently, less often and in smaller amounts.

RFM analysis can also be used to target special offers to ‘welcome’ new customers, encourage small purchasers to spend more, to reactivate lapsed customers, or encourage other marketing initiatives.

Customers are ranked based on their R, F, and M characteristics, and assigned a "score" representing this rank.

Assuming the behaviour being ranked (purchase, visit) using RFM has economic value, the higher the RFM score, the more profitable the customer is to the business now and in the future.

High RFM customers are most likely to continue to purchase and visit, AND they are most likely to respond to marketing promotions. The opposite is true for low RFM score customers; they are the least likely to purchase or visit again AND the least likely to respond to promotions.

Once you have scored customers using RFM, you will be able to:

•Decide who to promote to and predict the response rate

•Optimize promotional discounting by maximizing response rate while reducing overall discount costs

•Determine which parts of the site or activities attract high value customers and focus on them to increase customer loyalty and profitability