Employee Lifetime Value: What is it and how to improve it?

In recent years, businesses have realised the importance of their staff’s happiness and how to improve this. Companies no longer expect workers to come in, do their job and shut up — they now know that happy employees are better, more productive, and highly engaged.

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As part of their quest for happier employees, organisations are contending with a new buzzword on the scene — Employee Lifetime Value. So what is it, and how does it work?

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What is Employee Lifetime Value?

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Just like most other functions, HR’s role in the business is ultimately to further revenue. But how do you define return when it comes to people? It’s not like you can measure it with the same instinctive ease as sales or marketing. However, Employee Lifetime Value allows you to do just that — assign a tangible figure for people ROI.

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In other words, Employee Lifetime Value (ELV or ELTV) is a metric that measures the full value an individual delivers to a company throughout the whole employee lifecycle. It’s how much net income a company can expect from an employee in the total term of their employment. Think of this formula as the productivity of an employee (or how much they contribute to the team), compared with the resources the company spends on them.

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ELV is often shown on a graph of the employee lifecycle, where the X axis represents time (starting from the start date at the company and ending on their leaving date), and the Y stands for employee output. The ELV is the integral — or for us non-mathematicians, the space between the X axis and the curve. You want this part to be as tall and wide as possible!

How to improve ELV?

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There are a number of factors that can influence ELV. Some of which, however, are out of your control — such as time. This is crucial because, as any manager worth their salt knows, employees aren’t machines that are constantly productive. There’s a difference between the productivity level of an employee on their first day compared to a year into their role.

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In the beginning, an employee’s output is negative — you’ve invested plenty of resources into recruitment, hiring, and onboarding. However, they’re not yet contributing anything to the team as they’re still finding their feet. They can only go up from here!

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This upward trajectory will continue until they reach the point where they are fully contributing to the team (that is, of course, if they ever get there). After this, their productivity will plateau, until they decide to move on and leave. And until they say those last goodbyes, that’s when you’ll see a consistent drop in output. 

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Of course, it’s usually not quite as simple as this, but these are the general trends we recognise in the ELV timeline.

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Aside from time, there are tangible ways in which you can impact ELV.

Hiring

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Simply put, the first thing you should do to maximise ELV is to make sure you’re hiring the right person, not only for the job, but for your team and company. As we mentioned earlier, you want to make the ELV space on the graph as tall as possible, but also as wide, meaning you want them to stay in the company for longer and delay that decision to leave.

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A top hire also means greater output from the start, as they will thrive in your company and be able to become a top performer (not to mention attract other top performers to your business).

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There are many ways to improve your hiring process and ensure you’re recruiting the right talent for you. For example, studies have shown that personality is incredibly significant when it comes to hiring, so adopting a method that includes personality assessments alongside structured interviews is essential for the right hire, and cognitive assessments have been proven to be the most effective indicator of job performance.

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Onboarding

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Remember that first stage on the timeline, where your employee has been absorbing resources but hasn’t been producing? Reducing this period of time is essential for maximising ELV. The best way to do this is by having a robust onboarding process. This will both decrease the time it takes for your new employees to become fully contributing members of the team, and increase the likelihood of them staying for longer.

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According to the Society for Human Resource Management, an advanced onboarding programme not only includes a meticulous plan for the first day, but also for the first few months on the job. It should communicate clearly to new hires what the expectations are, as well as how things work and how they are meant to reach those goals. You should also ensure they are introduced properly to the team, understand the company values, and receive all the training they need.

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Management and development

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The ELV plateau can be postponed by ensuring your talent doesn’t stagnate. This, of course, will also impact their decision to leave — if they know they are constantly learning and developing in their role, they’ll be less likely to look elsewhere for the next stage of their career. In fact, 94% of employees say they would stay at a company longer if it invested in their learning and development.

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Ensure you have a development programme in place for your employees, and especially that their role progression is clear and defined. Invest in courses and learning opportunities for them, and make it a priority to manage with this in mind. By doing so, you’ll also be increasing their output, as they’ll learn new skills and be encouraged to think outside the box.

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Culture

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Culture is becoming increasingly important for businesses, and is now recognised as one of the top priorities for companies - with toxic culture being 10x more meaningful than compensation when an employee decides to leave their job. But it’s not just about retention either. A positive culture allows employees to live up to their potential in the workplace, and gives them space to be happy and productive.

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You can improve your company culture by investing in it. Share your company’s vision and values, allow your employees to feel like you care about them individually, organise events, and encourage a social element in your workplace. Another important element is hiring people who fit within your company culture — not everyone suits the same kind of culture, and testing this early on will save you from poor ELV.

How can Thrive help with your ELV?

From hiring through to development and culture, Thrive is an unparalleled tool when it comes to boosting your ELV.

Our low cost, personalised hiring assessments, developed by leading occupational psychologists, are a great indicator of who is going to be an exceptional employee for you — not just based on ability, but also on personality and how well they will fit within your unique company culture. Not only will this help with hiring, but also shorten your onboarding process by upskilling areas of weakness and leaning into areas of strength.

Thrive also helps you to measure and pinpoint improvement areas for employee culture and engagement, as well as being able to test for and identify any risk areas — for example, around leadership or stress levels. We develop personalised reports for each employee, indicating their preferred behaviours at work and helping them to understand their own development areas.

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Within the Thrive platform, you can also access culture surveys that can help you gain invaluable insight into the engagement of your workforce, and how they view your company. This enables you to improve before employees start leaving.
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Want to increase your ELV? Book a demo today to learn more about how Thrive can help you best.

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