What is employee lifetime value (ELTV)?
Employee lifetime value (ELTV) is a metric organizations use to evaluate the financial value of a team member throughout the employee lifecycle.
Similar to customer lifetime value (CLV), which assesses the value a customer brings to a business throughout their entire relationship, ELTV focuses on the value a team member generates through their skills, ideas, and cultural alignment.
Why is it important to measure ELTV?
ELTV gives HR professionals insight into what could be inhibiting their people from reaching their full productive potential. This kind of insight helps HR leaders put initiatives in place that create incentives for team members to engage more with their work, therefore maximizing the contributions of team members to the company.
These initiatives boost team members’ ELTV in turn. By measuring the progress of these programs, HR professionals can demonstrate the ROI of people-focused investments, making it easier to gain buy-in from company stakeholders and encouraging further people-focused investment.
Employee lifetime value formula
You can use the formula below to calculate ELTV:
ELTV = (Average yearly revenue generated of team member) x (Average tenure of team member)
This equation can give you a basic understanding of a person’s ELTV. However, to get a clearer picture, it’s helpful to also consider the following factors:
- Productivity and performance. Assessing a professional’s productivity, performance, and overall impact on the company’s goals.
- Retention. Longer tenure often implies more knowledge, experience, and potentially greater value for the organization.
- Training and development costs. Factoring in the investment made in training a team member throughout their tenure.
- Salary and benefits. Considering the total compensation package you provide to the individual, including salary, bonuses, and benefits.
- Contribution to company culture. Recognizing a person’s role in shaping and enhancing the company culture, fostering teamwork, and contributing positively to the work environment.
How to improve ELTV
You can improve ELTV by addressing the main challenges of the employee lifecycle: reducing time-to-productivity and increasing the employee retention rate.
At the beginning of the employee lifecycle, it takes time for a new hire to become familiar with their role and reach full productivity.
By reducing time-to-productivity, an organization is helping a new hire produce the most value for a longer period of time.
Strategies to reduce time-to-productivity include improving:
- Recruitment. A thorough recruitment process and attractive benefits packages ensure you’re hiring top talent with the right skills, qualifications, and experience to reach full productivity faster.
- Preboarding. With effective preboarding, new hires can quickly become productive by taking care of the necessary admin before starting work.
- Onboarding. Having a clear and efficient onboarding process helps new hires familiarize themselves with their roles sooner.
Implement retention strategies
Retention strategies extend your people’s period of peak productivity in the employee lifecycle by encouraging them to stay at your organization for a longer period of time.
Retention strategies could include:
- Investing in learning and development. Providing avenues for skill development and continuous learning not only enriches your workforce but also boosts their morale and dedication.
- Fostering a positive work environment. Cultivate a workplace culture that values diversity, inclusivity, and wellbeing. A happy workforce tends to stay longer and contributes more effectively to the organization’s goals.
- Recognizing and rewarding excellence. Whether through bonuses, promotions, or public recognition, appreciation goes a long way toward reducing employee turnover and increasing ELTV.
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How an HCM improved Amdaris’ ELTV
Amdaris, a software development company, faced challenges with a rapidly expanding workforce. They needed an HR system that could help them automate and improve processes throughout the employee lifecycle.
By using the Bob HCM, Amdaris was able to gather accurate data that gave them insights into trends based on a wide range of KPIs, such as growth rate, turnover rate, and average tenure.
Through this range of data, Amdaris’ management had a clear understanding of their people and what they needed. With Bob, they were able to create engaging preboarding and onboarding processes that helped reduce time-to-productivity for new hires.
Bob also allowed them to get regular feedback from team members to inform retention strategies—giving them the chance to increase ELTV.
An essential metric for success
Measuring ELTV can give you key insights into your organization’s people and the factors that help them succeed. These insights help you implement HR initiatives that make a significant difference to your company.
ELTV can also prove useful when justifying new initiatives or an HCM’s ROI to company stakeholders.
When organizations recognize and nurture the value each of their people brings to the table, they establish a culture that fosters talent, drives growth, and secures long-term success.