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Figure 1From “What is RFM analysis?”

Average customer lifetime value by RFM tercile at CDNOW

Customers in the most recent third were estimated to be worth about twenty times those in the least recent third. Monetary value separated them least.

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Figure 1Average customer lifetime value by RFM tercile at CDNOW

Horizontal bar chart of average customer lifetime value by RFM tercile, from Fader, Hardie and Lee 2005, Table 3. Recency: most recent third 201 dollars, middle third 62, least recent third 10. Frequency: highest third 205, middle 50, lowest 18. Monetary value: highest third 160, middle 81, lowest 31.50100150200250Recency, most recent third201Recency, middle third62Recency, least recent third10Frequency, highest third205Frequency, middle third50Frequency, lowest third18Monetary value, highest third160Monetary value, middle third81Monetary value, lowest third31Average lifetime value per customer (US dollars)

Source: Fader et al. (2005), Table 3, p. 426. Average estimated lifetime value per customer, in US dollars, for the 11,506 customers of one 1997 CDNOW cohort who made at least one repeat purchase, by tercile of each measure; about 3,835 customers per tercile. The authors assume a 30 per cent gross margin and a 15 per cent annual discount rate. The values are expected lifetime value beyond week 78, with no acquisition cost deducted. The authors' estimates, not a re-estimation.

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  • A FHL05-C3 Table 3: average CLV by tercile is $10, $62, $201 for recency, $18, $50, $205 for frequency and $31, $81, $160 for monetary value (about 3,835 customers per tercile); CLV varies most by recency and least by monetary value, consistent with the view that recency discriminates best; values assume a 30% margin and a 15% discount rate (pp. 423, 426): "We note that the greatest variability in CLV is on the recency dimension, followed closely by the frequency dimension. The least variation is on the monetary value dimension."; "This is consistent with the widely held view that recency is usually a more powerful discriminator than frequency or monetary value"; "Given an assumed annual discount rate of 15%"; "gross contribution margin of 30%"Fader, Hardie & Lee. (2005)
  • A FHL05-C4 The top cell averages $435 per customer, about 38% of the cohort's future value; average CLV is about $47; the zero cell, light buyers with no repeat purchase, holds about 5% of future value, more than most of the 27 other cells, so a thorough analysis must consider the zero class; the values are expected lifetime value beyond week 78 with no acquisition cost deducted (pp. 425, 426): "it shows an average net present value of $435 per customer"; "This represents approximately 38% of the future value of the entire cohort"; "the average CLV is approximately $47 per customer"; "Perhaps the most striking observation is the significant contribution of the"; "A thorough analysis of the customer base requires careful consideration of the zero class"; "an average expected lifetime value of $4.40 beyond Week 78"; "these very light buyers collectively constitute approximately 5% of the total future value of the entire cohort, which is greater than most of the 27 other RFM cells"Fader, Hardie & Lee. (2005)

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APA 7

Isoglu, S. (2026). Average customer lifetime value by RFM tercile at CDNOW [Figure]. isoglu.com. https://isoglu.com/insights/exhibits/isoglu-2026-what-is-rfm-analysis-fig01/

BibTeX
@misc{isoglu-2026-what-is-rfm-analysis-fig01,
  author = {Isoglu, Sinan},
  title = {{Average customer lifetime value by RFM tercile at CDNOW}},
  year = {2026},
  howpublished = {Figure 1, isoglu.com},
  url = {https://isoglu.com/insights/exhibits/isoglu-2026-what-is-rfm-analysis-fig01/},
  note = {From the essay {What is RFM analysis?}}
}
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<figure>
  <a href="https://isoglu.com/insights/exhibits/isoglu-2026-what-is-rfm-analysis-fig01/">
    <img src="https://isoglu.com/social/isoglu-2026-what-is-rfm-analysis-fig01.png" alt="Figure 1: Average customer lifetime value by RFM tercile at CDNOW" width="3200" height="2400">
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  <figcaption>Figure 1: Average customer lifetime value by RFM tercile at CDNOW. Source: Fader et al. (2005), Table 3, p. 426. Average estimated lifetime value per customer, in US dollars, for the 11,506 customers of one 1997 CDNOW cohort who made at least one repeat purchase, by tercile of each measure; about 3,835 customers per tercile. The authors assume a 30 per cent gross margin and a 15 per cent annual discount rate. The values are expected lifetime value beyond week 78, with no acquisition cost deducted. The authors&#39; estimates, not a re-estimation. <a href="https://isoglu.com/insights/exhibits/isoglu-2026-what-is-rfm-analysis-fig01/">View exhibit</a>.</figcaption>
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