RFM stands for Recency, Frequency and Monetary. It is a method used for segmenting or rating your customers. The best type of customers are those who have bought from you recently, who buy many times and in large amounts.
This is a system analyzing the value of a customer. It is mainly used in database marketing and direct marketing, but retail and professional services companies have also started using this method in their work. Recency stands for how recent did the customer buy something from you. Frequency stands for how often does a customer buy your products, and monetary stands for how much does the customer spend.
An example of a great customer is maybe best seen in supermarkets, or some smaller grocery stores. A customer who comes and buys there on a daily basis, even a few times a day is an example of a great customer. Many businesses will keep the data about their customer. They will make a table, with all of the information of the customer, and give grades from 1-10, 10 being the best one. The information would include name of the customer, date of purchase and purchase value. And that is how they track customers value.