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108 Data Analysis
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108.30.10.20.20.10.10 Data Analysis - Segments - RFM - How to segment RFM

# RFM - How to segment RFM

### Step 1

To implement this model you must have RFM information on each individual customer like this:

``````customer_id     recency_days    frequency_times     monetary_clv
1               3               6                   540
2               6               10                  940
3               45              1                   30
4               21              2                   64
5               14              4                   169
``````

### Step 2

Then, for each of R/F/M sort the list in order by score and give each `customer_id` a score from 1-5.

Data note: In this example there are only 5 records, so each `customer_id` gets a unique score, but in most cases you will divide the groups evenly. E.g. if there are 100 customers, there will be 20 of them with each score.

R (ascending order)

``````customer_id     r_value     r_score
1               3           5
2               6           4
5               14          3
4               21          2
3               45          1
``````

F (descending order)

``````customer_id     f_value     f_score
2               10          5
1               6           4
5               4           3
4               2           2
3               1           1
``````

M (descending order)

``````customer_id     m_value     m_score
2               940         5
1               540         4
5               169         3
4               64          2
3               30          1
``````

### Step 3

Put `r_score` on the x-axis. Put `AVG(f_score + m_score)` on y-axis.

In most cases, it seems that R & F are used to segment customers. In this case, as in the reference (1) I'm averaging `(F+M)/2` because frequency and monetary value are closely related.

``````customer_id     x_value     y_value
[1]             5           4
[2]             4           5
[3]             1           1
[4]             2           2
[5]             3           3

F/M

5  |              [2]
|
4  |                    [1]
|
3  |          [5]
|
2  |     [4]
|
1  |[3]
-------------------------
1    2    3    4    5      R
``````

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