RFM Analysis
RFM analysis is a method of segmenting customers according to their purchasing behaviours. Standing for Recency and Frequency and Monetary value customers are segmented according how recently, frequently they have made a purchase and the total monetary value of their purchases.
You may want to take a look at articles on RFM analysis by Bryan Eisenberg at but briefly using transactional data you should score customers from 1 to 5 according for each of the three metrics. This can be easily done in Excel - firstly sort customers by recency and score them using quintiles. In other words give the top 20% of individuals (i.e. those who have purchased the most recently) a score of 5, those in the next quintile 4 and so on. Now repeat the same process scoring those in the top 20% for Frequency with a 5 down to 1 for the bottom 20%. Repeat once more for monetary value.
In this way you have segmented customers into 5 x 5 = 125 segments. Those scoring 5,5,5, are high value, high frequency customers who have purchased very recently are probably the customers most likely to purchase in the near future. These might be customers you might consider emailing information about new products. Customers scoring 5,5,1 might be low value, high frequency, high recency customers - these are customers you might consider emailing with some sort of up sell offer.
RFM is a powerful technique that segments your customers into groups that help to you create effective web marketing strategies that drive revenue.
More info
Betting The Farm On RFM by Bryan Eisenberg, ClickZ, Apr 19, 2002
RFM Part 1. by Mark Sakalosky, ClickZ, Jan 28, 2002
Customer Response, Retention and Valuation Concepts (RFM Model) by Jim Novo