How to Measure and Improve ELTV
How to Measure and Improve ELTV
ELTV is a metric that helps measure an employees' value to an organisation over their entire life cycle. Understanding these measurements can help a business significantly maximise its ROI on staff costs.
What is ELTV?
ELTV is short for Employee Lifetime Value. It measures the net value that an individual worker brings to an organisation during the employee lifecycle.
This concept was born out of simple need. Many People or HR leaders have great ideas about how to improve employee engagement, retention, and productivity. However, getting management buy-in can be tough. One significant reason for these challenges is that it can be challenging to quantify how these measures will improve ROI in the workplace.
ELTV addresses this issue by providing a framework that helps HR managers communicate the value of investing in workplace initiatives, like:
- Talent management
- Employee development
- Culture initiatives
The framework was first established by Maia Josebachvili, Head of People at the payment processor Stripe. It draws influence from the idea of the Customer Lifetime Value (CLTV).
CLTV is a well-known metric that is popular in the SaaS space. It measures how much revenue a customer will generate over their expected lifetime with a customer.
Both CLTV and ELTV work under a similar principle. They aim to forecast the value of customers and employees over the long term. Instead of measuring their value by individual transactions, they can quantify their value over the average duration of their lifetime with the company.
CLTV is an excellent way for businesses to predict revenue. ELTV offers organisations a way to understand the value that employees bring to their business. Additionally, it provides insights into how investing in specific initiatives can improve ELTV.
How to Measure ELTV
HR managers can use a simple formula plot ELTV on an X-Y axis.
X represents time and spans from the moment the employee accepts the job to the time when they leave.
Y represents employee value through output or productivity.
From there, you can plot four separate points on the axis. These are:
1) Start: At the start of the relationship, the employee's output will be negative. They haven't started work yet; however, they have cost the employer resources due to recruitment and hiring.
2) Fully Contributing: The next stage of employee output is full contribution. This point is where the company is releasing the return on staff investment. The employee understands their job, and their production has peaked.
3) Decision to Leave: At some stage, the employee's growth plateaus and they decide to leave the company. In many cases, this is the beginning of a decline in output that continues until their last day.
4) Last Day: When the employee reaches their last day, their output drops down to zero.
While you can calculate ELTV with a graph, you can also use a formula to the same effect. For example:
A = the total cost of training, recruitment, and onboarding.
B = the total net-positive value an employee brings during their time with the business.
Then, calculate B minus A = ELTV in dollars.
How ELTV Helps HR Teams
There are several benefits to understanding ELTV. Three of the main ways it benefits HR managers are:
1. Estimating ROI on Employees
When HR managers calculate ELTV, it allows them to make better decisions and achieve more significant ROI on staff.
Businesses can compare and contrast data across employees. From there, they can spot patterns and identify areas to improve onboarding and employee retention.
2. Help to Articulate Investing in People
ELTV provides data that can be used to justify spending resources on HR initiatives. HR managers can show how various plans can translate into employees who bring long-term returns and help the company achieve positive business outcomes.
3. Greater Understanding of the Employee Lifecycle
Because ELTV tracks what happens at each stage of the employee lifecycle, HR teams can measure the effects of hiring, onboarding, and offboarding. Additionally, they can map other information — like development — onto the employee life cycle to gain insights and understanding.
The Factors That Affect ELTV
Before HR managers can boost employee lifetime value, they need to understand what factors affect ELTV.
When you plot ELTV on a graph, you can see that employees start out making negative contributions. The reasons for this are the costs of recruitment, hiring, and onboarding.
As such, the idea is that the employee will go from being net-negative to net-positive. The shorter the time period this happens in, the better the overall ELTV.
A good onboarding program is vital for allowing a worker to achieve a positive employee experience. It is also vital for reaching optimum productivity early on in the employee's tenure.
This Gartner study underlines how investing in onboarding can:
- Increase employee performance by 15%
- Increase discretionary effort by 20%+
- Increase employee retention by 9 times
2. Training and Development
Once employees begin producing a positive net output, employers should seek to retain them for as long as possible. However, maintaining employee morale, satisfaction and motivation require investing in training and development.
94% of employees say that they would be far more likely to stay at a company that invested in their training and development.
3. Employee Experience
Employee experience has a significant bearing on ELTV. As mentioned above, a good onboarding program alongside training and development will go a long way toward creating a good company culture.
HR teams can optimise their approach by measuring how ELTV is affected by each stage of the employee journey. From employee onboarding to initiatives that improve employee motivation, companies can ensure they hold on to their most productive employees.
4. The Recruitment Process
Increasing ELTV requires finding ways to ramp up employee productivity quickly. One way that HR teams can achieve this is through a recruitment and acquisition strategy.
Hiring experienced candidates should reduce the time required to get up to speed and begin making a net-positive contribution. However, it's worth considering that these candidates would likely require higher salaries. So, recruitment teams need to offset this quicker time to productivity with potentially higher costs.
#5. Management Managers play an influential role in employee engagement and productivity. Keeping employees motivated and interested requires encouraging their development and listening to their thoughts. Employee engagement surveys are a great way to gather feedback that can improve company culture and retention rates.
How To Improve ELTV
Improving ELTV requires onboarding new employees efficiently and ensuring they remain productive and motivated.
HR managers can help achieve this in several ways.
1. Invest in Onboarding
Investing in quality onboarding is a vital part of achieving a great ELTV. HR teams who are trying to minimise the time it takes for an employee to become productive should examine their current process and make it as efficient as possible.
For example, HR should consider what they can do in the pre-boarding time to help orient new hires. Preboarding is the time between an employee accepting a position and their first day. In many cases, employers can send materials and other information to help employees get up to speed before onboarding begins.
Otherwise, a good onboarding platform can be used to guide your employee journey efficiently. Additionally, consider automating tasks like employee paperwork so that your employee can concentrate on meeting management and teams so they can hit the ground running.
2. Employee Engagement
Employee engagement is essential for boosting productivity and retaining talent. Additionally, it's a reliable measure of employee satisfaction.
A recent Deloitte survey showed the importance of engagement in the workplace. 93% of respondents suggested that feeling a sense of belonging was a significant driver of productivity. In light of this study, it's imperative that employers find ways to engage employees and make them feel like an essential part of their organisation.
Additionally, employee engagement is a driver of both productivity and retention. Keeping well-performing staff members for extended periods is an effective way to boost ELTV.
3. Invest in Training and Development
A big part of increasing ELTV is retaining your most productive staff. To achieve retention, HR needs to keep employee engagement and satisfaction high.
While developing a good company culture is a big part of this, investing in training and development is a proven method to hold on to the best staff members.
When managers express an interest in their staff's development and career progression, it creates a sense of loyalty that is reflected in higher retention rates. Keeping talented staff members boosts ELTV, so ensure that training and development investments are part of your plans.
ELTV — or Employee Lifetime Value — is a relatively new measure of the long-term value that an employee brings to an organisation. Instead of measuring contributions over individual transactions or projects, ELTV takes into account costs for recruitment and hiring and offsets them against lifetime output.
By plotting and understanding these figures, employers can gain a better understanding of employee experience, from a staff member's first day to their last.
ELTV helps HR managers quantify how various initiatives can affect ROI. Having this information can help HR teams advocate and articulate why investing in people is crucial and can lead to increased employee engagement and retention.
As an employee experience platform, Qualee can help companies of all sizes to help improve ELTV, by maximising organisational alignment and belonging throughout the employee lifecycle. Sign up for a Starter Plan today!