What is Employee Lifetime Value & how Employee Experience can improve ELTV?

Published on
June 29, 2022
Contributors
Soumya Samuel, Gaurabh Mathure
Soumya Samuel, Gaurabh Mathure

How do organizations measure the success of any team?

Often - if not always - it is through the financial value attributed to the outcomes that a particular team drives.

And for most teams, this is a relatively easy metric to calculate.

For instance, Marketing teams can calculate the total revenue generated  through marketing campaigns minus the total marketing spend. Sales teams too can subtract the total sales spend from the revenue and put a quantifiable number to their efforts.

But for People teams, this has been a long-standing challenge.

Quantifying the outcome of programs and initiatives driven by passionate HR leaders has, for the longest time, been largely difficult. While turnover rate, time-to-hire, cost-per-hire and headcount are some of the numbers that have been used by HR teams for a long time, these metrics somehow fail to put an appropriate financial tag on the impact that the team is driving.

And this inability to attribute a dollar value to the outcomes meant budgets are sometimes hard to come by and often, HR managers miss the seat at strategic business conversations.

But there’s a relatively new and emerging metric that can tilt the scales in HR’s favor and i.e. Employee Lifetime Value or ELTV, for short. 

With ELTV, the overall ROI of HR efforts can be quantified and demonstrated.

So what is ELTV and how can employee experience improve it? Let’s find out.

What is Employee Lifetime Value?

Employee Lifetime Value is analogous to Customer Lifetime Value (CLTV).

Chief Marketing Officers use CLTV to demonstrate the value a customer brings by buying products and services from a brand through all the years they remain a customer. Over the years, CLTV has emerged as a crucial KPI that organizations track to understand:

  1. Who their most profitable customers are and how to get more of them onboard.

  1. How effective their customer experience initiatives are in retaining customers and ways to improve them.

  1. How to increase a customer’s purchases over time and drive more value.

Employee Lifetime Value as a metric has the same potential as CLTV. However, in contrast, fewer organizations calculate their Employee Lifetime Value, maybe because the math isn’t as easy and straightforward as CLTV.

By definition, ELTV is the net value each employee brings during the entire time they are with the organization, minus the cost of HR efforts which include but are not limited to hiring, onboarding, training and development.

Maia Josebachvili, the former Head of People at Stripe, in fact, described ELTV beautifully and also represented it through a graph (originally published on Greenhouse.io)

Graphical representation of Employee Lifetime Value
Graphical representation of Employee Lifetime Value

The X-axis in the above graph represents the tenure of an employee and the Y-axis the employee output. 

When an employee joins the organization, their output is usually negative as they are still learning the tricks of the trade. Over time, with the right guidance, they become a fully contributing member of the organization until the day they decide to leave. From then on, till their last day, their productivity decreases. 

The area enclosed beneath the graph - in the upper quadrant - represented in green, is an employee’s lifetime value.

As a People Leader, your goal would be to maximize ELTV.  The higher the ELTV, the better the returns from an employee for an organization. 

So how can you do that?

How to maximize ELTV?

Calculating the ELTV year on year can enable HRs to demonstrate the impact of their efforts.

An ELTV that grows positively year on year proves the effectiveness and impact of HR efforts.

So how can you maximize the Employee Lifetime Value?

Let’s start by revisiting the earlier graph.

Graphical representation of how to maximize ELTV
How to maximize ELTV?

Josebachvili suggests four ways in which ELTV can be maximized. 

  1. Shorten the time taken to be a fully contributing member

  1. Improve the maximum productivity an employee can achieve

  1. Enable the employee to further maximize their productivity

  1. Increase the duration an employee stays with the organization

Well, that’s great information, graphically and technically. 

But IRL, how can the above four ways be achieved through effective people practices?

Improve Employee Experience to maximize ELTV

Each of the four ways we uncovered above can be achieved by designing and implementing a great employee experience.

It is the same as this: A customer who has a great experience with a brand will buy more of its products, stay loyal to the brand for longer, and recommend others to buy from the brand. In short, great customer lifetime value!

An employee who has a great experience with a company will be more productive, stay loyal to the company and also refer more people to join the organization. Again, and in short, great employee lifetime value!

On the flip side, however, when the employee experience is inconsistent or poor, the employee becomes disengaged and quits, the ELTV cost of which is demonstrated in the below graph (originally published on Culturro.com)

ELTV cost due to employee turnover
Average experience. Inconsistent value.

To maximize ELTV through employee experience, organizations can focus on three key areas:

Maximize ELTV with better employee experience
Better experience. Compounding value.

1. Better hiring and onboarding experience

The chances of employees quitting within the first six months of joining are very, very high - every people leader knows this. The best way to avoid that from happening and at the same time, enable an employee to be a fully contributing member faster, is through effective hiring and onboarding experiences.

Don’t miss: Looking for an all-inclusive onboarding checklist? Our free onboarding checklist for 2022 is out.

2. Better performance management & growth and development

People want to learn and grow in their roles and careers. Organizations that show genuine interest in the growth and development of their employees are much more likely to retain employees for longer. From better feedback mechanisms to mentorship, training and development programs, career guidance and more, organizations can create experiences that will improve an employee’s engagement with the organization and thereby, their productivity and commitment.

3. Better workplace culture

No matter how great the onboarding experience and/or the learning opportunities were, employees cannot thrive and contribute in a toxic or unfavorable work environment. From something as simple as the lighting in a workplace to something as complex as building a sense of belongingness in the organization, cultural experiences play a huge role in an employee’s decision to stay with an organization.

Bonus: Listen to Tydy CPO, Gaurabh Mathure talk about ELTV, employee experience and how a platform like Tydy can help you enhance both.

And to this, we would like to add a fourth:

4. Unification and automation

HR has access to a number of amazing technology tools these days. Choose the right ones to automate mundane, repetitive or cumbersome tasks to improve the overall responsiveness, reach, and quality of HR services, thereby improving the employee experience. For instance, Tydy can streamline, secure and digitize the document and data collection processes during onboarding, drastically cutting down on the waiting period, data insufficiencies and time-consuming back and forth.

But data cannot and should not sit in siloes. Which is why the unification of disparate systems, apps and tools can improve ELTV in a significant way. With Tydy you can integrate your carefully curated tech stack to get the most out of each tool, while reducing the pressure of time, resource and cost on people teams.

Summing Up…

HR is a space where new and more nuanced metrics for calculating the impact of HR efforts and making informed decisions is emerging; thanks to HR technology and AI. Measurements like eNPS, TAT, sentiment analysis, ESAT, Retention Rate and ELTV are all opening up opportunities for the HR space. HR professionals are now in a better position to quantify their efforts and continuously improve their initiatives to drive measurable results.

Do you also want to demonstrate the ROI of your efforts, especially your Onboarding Experience strategy? Tydy can help. Book a one-on-one demo and we’ll help you assess how Tydy can add value to your organization.

You can also try our ROI Calculator to see exactly how much you will be able to save in terms of time and money spent.