What you need
For each customer: the date of their last purchase, the number of purchases, and their total spend, over a period such as the last 12 months. A loyalty card records exactly this.
Step 1: calculate the three values
- Recency: days since the last purchase.
- Frequency: number of purchases (or visit days).
- Monetary: total spend.
Step 2: score each from 1 to 5
Sort customers by each value and split them into five equal groups (quintiles).
- Recency: the most recent 20% score 5, the least recent 1.
- Frequency: the most frequent 20% score 5.
- Monetary: the highest spenders score 5.
Small business tip: with few customers, use fixed bands instead of quintiles, for example recency 5 = within 7 days, 4 = 8–30 days, 3 = 31–60, 2 = 61–120, 1 = over 120.
Step 3: name the segments
| Segment | R | F | Action |
|---|---|---|---|
| Champions | 4–5 | 4–5 | Reward, recognise, ask for referrals |
| Loyal | 3–5 | 3–5 | VIP tier or membership |
| Potential loyalists | 4–5 | 2–3 | Nudge to a habit |
| New | 4–5 | 1 | Win the second visit |
| Needs attention | 3 | 3 | A personal offer |
| At risk | 1–2 | 3–5 | Win-back now |
| Can't lose | 1–2 | 4–5 (high M) | Personal outreach |
| Hibernating | 1–2 | 1–2 | One last offer |
| Lost | 1 | 1 | Don't spend more |
Step 4: act
Pick the two segments with the most to gain. For most shops that is At risk (win-back) and New (second visit). Measure how many come in within a week or two.
Step 5: repeat monthly
Customers move between segments. The point is to watch the movement: are more customers becoming Loyal? Fewer slipping to At risk?
Doing it automatically
Selyo scores every cardholder on recency and frequency from real visits and ranks spend within your business, every hour, and shows who is in each segment. See RFM analysis in Selyo.