Applications of Business Analytics
Course - MG4524
By Mr. Sheraz Ahmed
RFM Analysis
RFM Analysis – Segmentation Technique
RFM stands for Recency, Frequency, and Monetary value.
These three numbers help us understand how customers behave. Perhaps it sounds too simple at first, but
once students see the logic, the segmentation becomes powerful.
• Recency (R)
o How recently a customer performed a meaningful activity with the business.
o This could be the last login, last ride, last streaming session, last order, last payment or last class attended…
o Recent activity usually suggests higher engagement and better retention odds.
• Frequency (F)
o How often the customer performs that activity in a given period.
o Frequent users tend to be more satisfied and more likely to develop long-term habits.
• Monetary (M)
o The value a customer contributes.
o In many businesses this is “spending”, but in others it may be time spent, content consumed, ads viewed, or
credits used.
o It basically captures the intensity of value.
Mr. Sheraz Ahmed
How RFM Helps Business Analysts
RFM gives a simple structure to understand how different customers behave. It helps analysts see patterns
that are not obvious at first glance.
What analysts can do with it
o Identify which users are the most engaged and which ones are fading.
o Prioritize retention efforts instead of guessing where the problem is.
o Build customer segments that feel practical, not overly technical.
o Support marketing teams with evidence rather than intuition.
o To segment high-risk, low-risk customers in receivables management
Mr. Sheraz Ahmed
Practical Examples (Use Cases)
Food Delivery App
You have a dataset showing last order date, number of monthly orders, and total spend.
Which segment should receive a “reactivation” discount? Which group deserves loyalty rewards?
Ride-Hailing Service
Your data includes last ride date, number of rides per week, and total ride value.
Which users might respond well to a weekend promo? Who looks like a daily commuter?
Accounts Receivable / Bad-Debt Analysis
You track last payment date, number of payments, and outstanding amount.
Which customers are likely to run away with your money?
Netflix-Style Streaming Service
You track last watch date, sessions in the last 30 days, and minutes watched.
Who is drifting toward churn? Who should get personalized content recommendations?
Mr. Sheraz Ahmed
RFM Across Different Industries
Do all businesses treat R, F, and M with equal importance?
Business Primary Focus Rationale
E-commerce • R All three matter strongly for growth and CLV (customer lifetime
• F vale).
• M
Real Estate – Buying of • R Customer interactions (calls, emails, visits) are more relevant than
a House • F pure transaction data.
• M
Restaurant • R Encouraging frequent visits.
• F
• M
Subscription Service • R Recent use predicts churn; session frequency deepens habit;
• F price is usually fixed. Here we can redefine “M” as “minutes
• M watched”. Otherwise, subscription fee is usually fixed and carries
low weight.
Mr. Sheraz Ahmed