RFM analysis is a common tool used among the sector to segment their donors. RFM allows fundraisers to target specific clusters of donors with communications that are much more relevant for their particular behavior – and thus generate much higher rates of response, plus increased loyalty and donor lifetime value. Like other segmentation methods, an RFM model is a powerful way to identify groups of donors for special treatment.
In this assignment, you will be building a function to compute RFM values.
- Recency: How much time has elapsed since a donors last donation?
- Frequency: How often has a donor donated during a particular period of time?
- Monetary: Also referred to as “monetary value,” this factor reflects how much a donor has given.
- The first step in building an RFM model is to assign Recency, Frequency and Monetary values to each donor. The raw data will be provided to you in the assignment.
- Recency is calculated as the amount of time since the customer’s most recent donation
- Frequency is the total number of donations made by a donor
- Monetary is the total amount that the donor has given across all transactions (during a defined period).
- The second step is to divide the customer list into tiered groups for each of the three dimensions (R, F and M)
| Recency | Frequency | Monetary |
|---|---|---|
| R-Teir-1 (most recent) | F-Teir-1 (most frequent) | M-Teir-1 (highest total spend) |
| R-Teir-2 | F-Teir-2 | M-Teir-2 |
| R-Teir-1 (most recent) | F-Teir-3 | M-Teir-3 |
| R-Teir-1 (least recent) | F-Teir-4 (least frequent) | M-Teir-4 (lowest total spend) |
This results in 64 distinct customer segments (4x4x4), into which donors will be segmented
Using the sample data provided, implement RFM segmentation in python with unit tests.
- You may decide on the data structure you would like to use for the inputs and outputs for the
rfmfunction. - You may use any packages, libraries, you'd like.
- You may use google but please try to implement the solution on your own. I'm more interested in seeing how you think rather than you creating a perfect solution.