What is employee lifetime value, and how can measuring ELTV improve your organization?

Even the most talented HR professionals struggle to gauge the value of an organization’s employees. It’s very difficult to quantify the contributions of a specific employee, especially if their role doesn’t directly generate revenue. Yet making the case for increased investments in employees, like stronger new hire onboarding or training programs, without data supporting how these programs will affect employee impact is difficult, too.

One metric that may provide some much-needed insight is employee lifetime value (ELTV). HR professionals can use it to understand how much an individual contributes to the organization, whether in dollars, in productivity, or even in morale. With ELTV data, HR teams are able to pinpoint weaknesses in their current hiring, onboarding, or training initiatives, which allows them to make a stronger case for new programs or tools that will help employees succeed across the organization.

Let’s explore what ELTV is, how it’s measured, and how your organization can use the insights it reveals to increase your investment in employees, which will ultimately lead to a stronger, more productive business.

What is employee lifetime value?

Employee lifetime value is an estimation of an employee’s potential or actual contribution to an organization. ELTV can also be used to measure the contributions made by specific roles, teams, or even locations.

Whether forecasted — when a new hire’s role is first created but before it is filled — or based on data from existing employees, ELTV is typically displayed on a graph with a role's “value” on one axis and their time at the organization on the other. This value measurement is expected to increase over time, decreasing only when the employee leaves the organization.

Graph of employee lifetime value stage 1

Most ELTV graphs have two common factors:

  1. The relative value of an employee is negative from the time of their hire through their first day and onboarding period. This is because most new hires typically don’t make measurable contributions until after onboarding has been completed.

  2. The value of an employee typically decreases to zero after they make the decision to leave. This is because their measured contributions also decrease until their last day.

While most ELTV graphs include a decrease to zero at the time of an employee's departure, you may choose to adjust the rate of decline or remove it entirely based on the contributions of the employee in question. For example, if the employee has trained other members of the organization, has put new processes in place, or has won important deals that continue to bring in recurring revenue, this person’s value is technically not zero, even after their departure.

How is employee lifetime value calculated?

As mentioned above, employee lifetime value is typically graphed with a unit of value on one axis and time on the other. While this “value” is sometimes difficult to quantify, it’s usually an employee’s contributions to the organization in terms of revenue, ROI, productivity, or a unit of your own creation. Both value and time may be real or projected.

Revenue-generating roles are typically measured using a dollar amount or number — for example, number of sales or total amount of new business closed. The amount of revenue generated is expected to increase over time, so the employee’s lifetime value will increase with it.

Graph of employee lifetime value stage 2

The value of roles that don’t generate revenue is usually related to specific contributions. For example, a writer’s ELTV might be measured by the number of articles they publish each month. If this article count increases over time, their lifetime value increases with it.

Graph of employee lifetime value stage 3

The key to accurately calculating ELTV is a clear, documented measurement of value. Without this, ELTV calculations often don’t provide any valuable insights for recruiters or company leadership.

Three ways to improve an organization with ELTV data

The ELTV model is useful for several reasons. Not only does the data highlight opportunities for improvement in hiring and onboarding processes for new employees, but also in training and career development processes for current ones.

Let’s examine this and two other ways ELTV data can be used effectively in more detail.

1. ELTV helps justify necessary Human Resources initiatives

By measuring employee lifetime value, HR teams can gain important insight into what is — and isn’t — working at their organization. This insight may apply to individual roles, multiple roles, or teams.

One example: During the onboarding period, ELTV for a new sales representative is usually low or even negative because the employee isn’t yet making connections with prospects or conducting demos. But if this period of low contribution lasts for more than three months and is reflected in the ELTV of all new sales hires, various processes may need revising to speed up onboarding.

Graph of employee lifetime value stage 4

With this data in hand, HR can make the case for new initiatives that will improve the speed and quality of sales rep onboarding, such as specialized training, the creation of documentation, or shadowing experienced sales team members. The presentation of the ELTV data allows leadership to better understand how the addition of new initiatives will positively impact the contributions of both current employees as well as future ones.

2. Lifetime value graphs provide career path insights

Once an employee’s lifetime value is graphed, members of the organization may use the results to guide the career paths of their employees. An employee with steadily increasing ELTV may be ready for a promotion, whereas an employee with decreasing ELTV may require more training, or may even be more productive in a different role at the organization.

An individual employee’s graph can be compared to others in the same role to show who is excelling, and how top performers with increasing contributions compare to those who may have already been promoted or moved on to a different role. Additionally, using ELTV data to compare employees against the same scale allows a fair judgement of performance, reducing the potential of managerial bias and giving all employees an equal chance at career advancement.

If an above-average performer is identified via ELTV data, HR may notify their manager so they can discuss career advancement, role shadowing, or other options. Alternately, a below-average performer may be provided training to improve their skills, or offered the opportunity to move into a role better-suited for their strengths, ultimately increasing employee retention.

Regardless, the data helps justify the decision. HR and leadership may also choose to revisit an employee’s ELTV graph a few weeks or months after a decision is made to measure their progress and guide further actions.

3. ELTV data provides certainty around hiring

Measuring ELTV for a current employee or specific role may help HR professionals set the bar for future hires, or help recruiters identify stronger candidates. If a recruiter knows that an employee with four years of sales experience has a high ELTV, they may choose to prioritize interviews with candidates who have worked four or more years in a sales role.

Additionally, calculating potential employee lifetime value may help employers better understand the theoretical return on investment (ROI) of a new role or additional hire. For example: If the salary of a new engineering hire is $90,000 per year, a hiring manager will need to decide what kind of value this individual should contribute — and over what amount of time — in order to have a positive ROI.

While this approach may not be as helpful for roles whose value is difficult to quantify, it can still be beneficial for organizations where revenue is low or closely tied to specific employees and their actions.

Develop stronger employees by understanding ELTV

In her article on employee lifetime value, Stripe’s head of people, Maia Josebachvili, accurately describes calculating the return on investment of HR practices, including measuring metrics like ELTV, as “extremely challenging.” However, as she elaborates, “even small improvements in hiring, onboarding, and managing talent can result in significant ROI for the business.”

Measuring employee lifetime value is just one of many ways you can find opportunities for these small improvements . The insight this metric provides is often useful in many ways. By understanding what an employee, role, or team’s lifetime contribution is and what actions your HR team can take to support and increase it, you’ll be able to develop stronger employees — truly invaluable resources for any company.

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