What is Employee Lifetime Value (ELTV)?

Omesh Makhija

Senior Writer

Employee Lifetime Value (ELTV): How to Measure and Implement It?
Key Takeaways
  • Implement a comprehensive onboarding process to ensure new hires become productive quickly, enhancing their long-term value.
  • Provide continuous learning and clear career paths to boost skills and increase employee lifetime value.
  • Analyze ELTV regularly to make data-driven decisions that improve employee performance and retention.

Employee Lifetime Value (ELTV) takes into account the actual worth of employees and their financial contributions. It then translates these broader values into measurable metrics to quantify the true value that each employee brings to the company.

ELTV records the effects of workers’ creative solutions, cost reductions, and productivity gains throughout their employment. Gaining insight into and improving ELTV is essential for drawing in and keeping talent in the competitive job market.

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ELTV is a crucial HR metric. Let’s explore its significance, what influences it, and how you can enhance it in your company.

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Pro-tip

Regularly analyze ELTV metrics alongside other performance data to uncover trends and opportunities. This data-driven approach enables you to make informed decisions on recruitment, development, and retention strategies, ultimately enhancing employee value.

What is Employee Lifetime Value (ELTV)?

Employee lifetime value calculates an employee’s projected future contribution throughout their employment with a company. It is seen as a crucial ROI statistic for HR initiatives, focusing on long-term effects as opposed to immediate benefits.

  • Employee: Any person who receives official salary and works for the company, whether full- or part-time.
  • Lifetime: The duration of the employee’s relationship with the organization.

A high ELTV suggests that there is a beneficial impact on business results. Similar to customer lifetime value in marketing, employee lifetime value evaluates an employee’s overall contribution during their whole job. This assessment starts on the first day of employment and ends on the last day of employment with the company.

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Why Is Employee Lifetime Value Important For HR To Measure?

 HR professionals can ensure that resources are deployed effectively by making well-informed decisions about training, development, financial value, and recruitment by reviewing ELTV. Let’s understand the importance of employee lifetime value for the HR department.

Reasons To Measure ELTV For HR By SoftwareSuggest

1. Understanding the Employee Lifecycle

ELTV provides an extensive overview of the full employee journey, from the hiring to the offboarding process. It enables HR managers to optimize processes like hiring, onboarding, performance management, and exits by helping them understand when and how to step in at different stages of an employee’s career.

Stages of Employee Life Cycle By SoftwareSuggest

Every stage is customized to optimize employee value and corporate performance with this data-driven approach.

2. Measuring the ROI of Human Capital

HR can make data-driven decisions that maximize hiring, recruitment, training, and employee retention efforts by keeping an eye on ELTV. By using this metric, companies can generate extensive comparison data sets to help identify the best methods for integrating and onboarding new employees.

Ways To Measure ROI of Human Capital Investment By SoftwareSuggest

Consequently, companies can create a more robust culture that amplifies worker engagement and retention, so generating better ROI from their human capital investment.

3. Building A Case For Human Capital Investment In Business

ELTV offers insightful information about the benefits of funding employee growth. It helps HR to defend the allocation of funds to learning and development initiatives by allowing them to portray the costs of training and development as strategic investments that lead to observable business outcomes.

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 HR can more effectively advocate for funding efforts that improve performance, promote career advancement, and build skills by showcasing the link between employee development and long-term company success.

How to Calculate Employee Lifetime Value?

Employee Lifetime Value (ELTV) can only be accurately calculated by applying a formula that takes into consideration a number of employee-related financial factors and gathering precise data. These steps include knowing how much money people bring in, how much their employments cost, and how long they have worked for the company on average.

Employee Lifetime Value Formula

1. Determine Average Revenue per Employee

Calculate the average income earned by every employee. Usually, to calculate this, the organization’s total revenue is divided by the number of employees.

Average Revenue per Employee = Total Revenue/Number of Employees

2. Estimate Average Employee Tenure

Calculate the average income generated by all employees. Typically, to calculate this, the organization’s total revenue is divided by the number of employees.

Average Tenure = Number of Employees/Total Tenure of All Employees

3. Calculate Average Contribution Margin

The gap between revenue and variable costs that can be linked to a specific employee is known as the contribution margin. It helps in figuring out how much revenue each employee contributes. For example:

Average Contribution Margin = Number of Employees/Total Contribution Margin

4. Factor in the Cost of Employment

Take away the entire cost of hiring a person, which includes their salary, employee perks, and other charges. For example:

Cost of Employment = Salary+Benefits+Additional Costs

5. Apply the ELTV Formula

To calculate the employee lifetime value, combine all of these factors.

ELTV = (Average Revenue per Employee×Average Contribution Margin)−Cost of Employment

This formula calculates the net value an employee generates for the organization over their entire tenure, factoring in both their revenue contributions and associated costs.

By using this formula, organizations can quantify the financial impact on their employees. They can provide valuable insights into workforce planning, investment in development, and strategic decision-making.

Strategies to Improve Employee Lifetime Value 

Enhancing the overall value that employees offer to your company throughout their employment is the goal of improving employee lifetime value(ELTV). This calls for an approach that focuses on multiple aspects of the employee experience, from hiring to career development and retention. Here are some vital strategies to improve ELTV:

How To Improve Employee Lifetime Value? By SoftwareSuggest

1. Enhance Onboarding and Recruiting

Prioritize recruiting applicants whose aims, values, and skill sets complement the goals and culture of your business. Evaluate the candidate’s long-term potential to support the organization’s expansion in addition to their immediate fit.

Put in place a thorough onboarding process that allows an easy onboarding experience for new employees. Give them the equipment, materials, and instruction they need to start producing results immediately.

2. Invest in Employee Development

Give employees access to continual training and development initiatives to help them grow professionally and acquire new skills. Workshops, online classes, certificates, and mentoring initiatives are a few examples of this.

Provide possibilities for advancement and clear career channels inside the company. Assist employees in realizing their career goals and the steps necessary to get there.

3. Enhance Employee Engagement and Retention

Establish a welcoming and inclusive work environment where staff members feel appreciated and valued. Promote candid communication, teamwork, and acknowledging accomplishments to engage remote employees, ensuring they feel connected despite the distance.

Ensure your pay scales align with the value that employees contribute to the company. Review and modify benefits on a regular basis to satisfy the needs and expectations of the workforce.

4. Focus on Employee Well-being

Offer services and initiatives that promote workers’ mental and physical well-being. This can involve having access to wellness programs, health screenings, and counseling services.

Encourage employees to strike a healthy work-life balance by providing time off,  and flexible work schedules. Maintaining a healthy work-life balance is important for long-term job satisfaction and retention.

5. Leverage Data and Analytics

Maintain ELTV and other relevant KPIs by using HR data analytics. Examine this data frequently to spot patterns, challenges, and areas that could use improvement.

Evaluate how well your company is performing in comparison to competitors by comparing ELTV and other performance measures with industry standards. Make well-informed choices and strategic changes using this understanding.

Conclusion

Employee development, retention, and a positive employee experience are crucial for enhancing employee lifetime value, which in turn positively impacts your organization’s bottom line. ELTV provides insight into how minor adjustments in HR practices can significantly influence employee value.

By gathering, monitoring, and analyzing ELTV data, you can make informed workforce decisions that lead to better ROI. Effective data and analytics help decision-makers understand how new hires can optimally contribute, fostering a culture of engagement, employee output, and retention.

Frequently Asked Questions

Employee development, retention strategies, and overall work experience significantly influence lifetime value by enhancing engagement, productivity, and long-term contributions to the organization’s success.

Technology aids ELV measurement by providing data analytics and performance tracking, allowing for targeted improvements in onboarding, training, and employee engagement to enhance overall lifetime value.

Challenges include accurately tracking all relevant data, isolating the impact of specific HR practices, and accounting for external factors affecting employee performance and retention over time.

Leadership drives ELV by setting a vision for employee development, fostering a supportive culture, and implementing strategies that enhance engagement, retention, and overall employee contributions to the organization.

omesh makhija
About the author

Omesh Makhija is an experienced HR and payroll specialist with a wealth of knowledge in optimizing payroll operations and streamlining HR procedures. Omesh has a track record of successfully putting cutting-edge HR technology solutions into practice and making sure labor laws are followed. Omesh is committed to assisting companies in increasing employee happiness and HR efficiency as a fervent supporter of HR automation.

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