RFM segmentation ranks customers on three criteria: recency (date of last purchase), frequency (number of orders) and monetary value (total spend). Each criterion receives a score, often from 1 to 5, and the combination forms segments such as loyal or at-risk customers, useful for targeting marketing actions.
Example
Customer 5-5-5: bought recently, often and for high amounts; customer 1-4-4: a former good customer to re-engage.