how this metric influences your company’s success – WAU
Employee Lifetime Value is an indicator of the return generated by an employee during his time at the company. Knowing how to calculate it and how to maximize your results can be the differential that your company needs to reach a new level of success.
We live in a time when technology is gaining more and more prominence in the operations of any company. Features such as the automation of processes and the use of data for strategic decision making increase business productivity and facilitate the search for effective solutions. Yet, human capital remains the most important.
Without a group of professionals engaged and efficient in carrying out their functions, it is not possible to use technology to pursue their goals.
Therefore, there is a growing concern to measure the contribution of employees and find ways to enhance it. And that’s where Employee Lifetime Value (ELTV) comes in.
It is a metric that, if studied, can bring valuable insights to HR management, facilitate the search for talent and even help to reduce the turnover rate.
How about going deeper into the subject? In this article that we have prepared for you, we will explain:
Continue reading to understand!
What is Employee Lifetime Value?
Today, with the resources we have to collect and analyze data, all areas of management must be guided by metrics that enable informed decisions. Employee Lifetime Value, or ELTV, is one of the most important, especially for human resource management.
To understand what is measured by ELTV, just understand the meaning of its name. In free translation into London, we can understand it as Employee Lifetime Value. In other words, the metric seeks to measure the financial return that each employee generates in his time working at the company.
The zero point is the moment of hiring. There, the company spends resources for the purpose of publicizing and structuring the selection process.
Once hired, the professional starts to generate expenses such as those related to fees, but also to contribute to the production of revenue for the business. ELTV seeks to understand the value of this contribution until the end of the relationship.
The complexity of the Employee Lifetime Value lies in the fact that the return produced by the employee depends on several factors.
The company’s organizational climate and working conditions are some of the elements that influence its engagement, which, in turn, affects its level of production.
How to calculate the Employee Lifetime Value?
How to measure the return that an employee brings to the company? This is a complicated question, since different functions can bring different forms of contribution to the business. Imagine, for example, that you want to measure the ELTV of sellers and producers of articles focused on Content Marketing.
The first group, whose main function is to make sales, can be measured according to the financial value generated by the completed transactions. In the case of the second group, it is not so simple. If it is not possible to measure exactly the return that each content produced generates, it is valid to define the number of articles published as tangible value.
In any case, the first step in calculating the Employee Lifetime Value is to define which element, or set of elements, will be considered the main one in evaluating a job. Then, just create a graph in which the axis x represents the employee’s time in the company and the y signals your contribution.
In the image below, we use the example of a content producer who has been with the company for 5 months and produced 62 articles.
Did you notice that employee productivity dropped after reaching the peak? This is a common movement and justifies the growing concern to keep teams engaged. After all, the decrease in the level of production represents a drop in ELTV and can, eventually, result in the dismissal of the professional, which generates more expenses.
To recap, ELTV is the relationship between the employee’s time in the company and the return generated by him based on the parameters defined by management.
With this, we can summarize the ELTV calculation by applying the following formula: ELTV = return per employee X length of stay in the company.
How important is ELTV calculation for companies?
Closely monitoring the Employee Lifetime Value is of fundamental importance for any company, as all are directly affected by the performance of its employees. Based on the values found, it is much easier to make decisions that are based on data, not assumptions.
Therefore, the main importance of ELTV for companies is the possibility of maintaining operations in a constant process of optimization. The calculation indicates, for example, whether members of a particular team are generating satisfactory returns to the point of justifying the investment made in them.
If not, management has sufficient resources to identify the problem and take steps to resolve it. On the other hand, if the ELTV result is positive, the practices adopted by the team in question can be disseminated and serve as an example for other professionals in the company to increase their revenue generation.
So, the opportunity for close monitoring and improved performance management are factors that justify the use of this metric. However, there are more specific advantages. We’ll focus on them below!
Competitive advantage in the search for talent
The process of selecting and recruiting professionals is complex. In addition to the challenge of finding talents that fit the company’s culture and have the necessary skills to fulfill a role, it is necessary to overcome competition from other employers. In this dispute, it is not only the remuneration that counts.
In addition to a good salary and an adequate work environment, the best professionals look for companies that know how to value them, which goes directly through the use of ELTV. After all, how can you give credit to employees who do a good job if you don’t follow their performance closely?
Therefore, a company that values the importance of Employee Lifetime Value is welcomed by candidates. They know that if they maintain a satisfactory level of production, they are more likely to have their work properly recognized.
Professional development and increased engagement
If you know which employees are performing below expectations, you can invest in solutions to change this scenario. The most common are related to training programs, such as courses, lectures and workshops. In doing so, you not only contribute to improving the company’s results, but also to the team’s morale.
When he sees that it is possible to develop his own skills, the employee feels more valued. Consequently, his level of engagement tends to improve, which reduces the chances of him looking for another company to pursue his career and improves his productivity.
This relationship between the professional’s development and his level of engagement is clear in a recent study by Gallup. In it, it is possible to observe that companies that invest in training and qualification programs experience a growth of approximately 14% in the engagement of their employees.
The improvement in financial results can also be seen. According to the study, companies with an average of 1000 employees manage raise revenue by up to $ 1.8 million, just with increased productivity.
Decreased turnover rate
The turnover rate refers to the number of employees who are dismissed from the company, either by choice or by managers’ decision. In any enterprise that aims at long-term results, the ideal is that this rate, also called turnover, is kept low.
We can list several reasons for this, including the challenges involved in finding a replacement. There is, for example, the financial issue. It is estimated that the cost to replace an employee may reach 21% of the value of his annual salary. And what does this have to do with Employee Lifetime Value?
Remember when we mentioned in the previous topic that the use of metrics can help to develop professionals and thus increase engagement in the workplace? Good, an engaged worker is one who feels motivated and happy to work, therefore, is less likely to ask for termination.
How to enhance the Employee Lifetime Value?
At this point, it is already evident that the use of Employee Lifetime Value brings benefits to the company, such as increased employee engagement and the consequent increase in production. In addition, this monitoring makes it easier to take measures to reduce the company’s turnover rate and facilitate talent retention.
But, after all, how can this be done? More than knowing how to calculate ELTV, it is essential to know the best practices to maximize the results of this calculation. That’s what we’re going to talk about now!
Perform structured onboarding
Onboarding is the process of introducing a new employee to the company. Compared to how long he will be with the company, this is a short period, but its impacts are long-lasting. Therefore, it is essential to structure the process so that it guides the professional to success.
To do this, imagine the onboarding process as a sale to a customer. If you are going to sell a solution, you need to educate the consumer about its features, so that he can operate it without major problems. In this case, the customer is the new employee.
In this sense, organize lectures and events to inform newbies about the company’s culture and the functions they must fulfill. It is important that this procedure is carried out by an experienced person who, in addition to knowing the company deeply, has good knowledge of people management.
It is also important not to focus only on requirements. Make it clear from the beginning what benefits the employee can expect and what kind of treatment he will receive. A person who is well received in his first days at work tends to keep productivity high for a much longer period.
Adopt good management practices
It is not new that inefficient leadership generates unproductive workers. So, it is important to find ways for the company’s management to know how to keep employees motivated and engaged in their functions. For this, one of the main factors is the level of presence of managers.
Knowing that your superiors are in fact engaged in the development of the company is something that facilitates the engagement of professionals. So make sure to make that clear. Organizing individual meetings with some frequency is a way to do this and also show the appreciation given to the employee.
To facilitate the organization of these meetings, establish in advance the frequency level you want to achieve. This makes it possible for such meetings to be scheduled in advance, which opens space for both parties to prepare for the event. It is also important to ensure that both sides have the opportunity to express themselves.
The famous phrase “listen more, speak less” applies here. Listening to what your teams have to say is a way not only to better understand your needs and characteristics, but also to keep them motivated and valued.
Invest in efficient internal communication
No one can improve a result if they do not know that it needs to be improved. Therefore, ensure that your employees stay on top of the company’s goals, practices considered appropriate and the results achieved. Therefore, it is essential to have an efficient internal communication.
If you’re in constant contact with the teams and make sure they know what’s expected of them, charging for improvements becomes feasible. However, be careful not to focus on charges and forget about solutions. The manager’s role is not only to point out the problem, but also to point the way to its resolution.
So it’s It is essential that you know how to guide the actions of your staff. If, in this process, you identify any point that needs to be improved, it is worth opening conversations with the teams and, who knows, working together in an individual development plan.
Strengthen your organizational culture
Organizational culture is the set of rites, beliefs, values and traditions that guide a company, which includes the behavior that is expected from employees. In some companies, for example, it may be acceptable to use the cell phone during work hours, while in others it may be considered a problem.
In all cases, it is essential that the culture of your company is clear and does not open space for double interpretations.
This is a factor that directly influences the employee’s success, so it has effects on ELTV. A survey that interviewed 20,000 new hires shows that, in the first three semesters, 89% of failure cases are related to behavioral issues.
Employee Lifetime Value is a fundamental indicator for the performance management and evaluation of a company’s employees. Its use makes room for informed decision making and can even serve as a competitive advantage in the recruitment process.
To increase the Employee Lifetime Value and reduce the turnover rate, it is important to have a strong management and know how to communicate with employees. It is, therefore, an essential tool for achieving better results.
So, ready to evaluate and enhance the return generated by your employees? How about continuing to learn? Check out how you can use incentive marketing to motivate your teams!