The Iron Rule of RFM

For example, if you’re a gift cataloger with an average catalog price point of $30, you might try segments like this: $0-$30, $31-100, $100+. The goal is to select thresholds that combine similar buyers into one group, and divide dissimilar buyers into different groups.

So, by bringing all the above together, we have about five recency groups (current year, one year ago, two years ago, three years ago, four or more years ago), two frequency groups (single-buyer, multi-buyer), and three monetary groups ($0-$30, $31-$100, $101 and up), which means we will need just 5x2x3=30 different mailing codes, which means you’ll need just 30 rows in your end-of-year “Sales by Mailing Code” report.