Economics/Business

Employee lifetime value calculation/definition/important/How to increase

Have you ever heard of Employee Lifetime Value? Every company that wants to work with a more strategic HR needs to know and closely monitor this indicator. After all, he is responsible for showing the financial effectiveness of each employee, therefore, he directly influences management decision-making. Employee lifetime value calculation

In this article, we’ll explain what ELTV is, why it’s so important, and how to properly calculate it. In addition, we will give you a series of tips to strengthen the indicator and get all its benefits. 

What is Employee Lifetime Value?

The Employee Lifetime Value or ELTV is an indicator of the Human Resources area that shows the value generated by each employee over the time they are part of the workforce. In other words, it concerns the financial return of each person in the organization.

The calculation starts on the day the employee is hired and must consider all costs and returns obtained over the months. Such returns can be more or less easy to measure, depending on the job in question. 

In the sales team, for example, it is easier to identify how much revenue each salesperson generated for the company directly, which does not happen with administrative professionals, for example. Anyway, there are different ways to measure people’s results, as we’ll see later.

Why is ELTV so important to a business?

ELTV is an indicator that makes people management more strategic and, consequently, more efficient. That’s because it’s much easier to properly manage something you have a good base of information on. See some of the direct benefits of monitoring ELTV in companies.

Help in calculating ROI in HR

ROI is one of the central indicators of any company. It is usually followed in the purchasing, sales and production sectors. However, it can also, and should, be measured in HR, for a more effective direction of actions in the area. Employee lifetime value calculation

In this sense, ELTV is the basis for the calculation, as it provides a more detailed and accurate view of all the costs involved in maintaining each company’s position and how much earnings are being generated, both directly and indirectly by people . 

Directs development and recognition actions

One of the most important contributions of people management to the organization is the training of employees so that they perform their activities in an optimized way. Therefore, ELTV allows managers and HR to identify professionals who are being underutilized in their roles to develop them, as well as those who present a good performance and, therefore, should be rewarded. 

Based on this information, training planning can be better directed according to the company’s needs, while the granting of awards and promotions can be applied at the right times, increasing engagement and boosting team results. 

Acts in talent retention

The retention of talent is another constant concern of HR, not only because of the loss of excellent professionals, but also because of the costs that are linked to termination processes and spare each wave.

As we said in the previous topic, ELTV helps to optimize the structuring of the employees’ development plan and this results in an increase in the motivation, engagement and satisfaction of professionals. As a result, the company gains an important ally in talent retention, which impacts on the reduction of the turnover rate . Employee lifetime value calculation

Improves talent attraction

Despite being an indicator with a financial focus, the ELTV measurement also generates important information for decision-making on other fronts. By identifying who the people are that generate the best results, HR can assess what motivators they have in common to replicate them with others. 

Likewise, negative points can be better studied to be avoided. This information base generates important knowledge for People Management, which can improve its efforts in Employer Branding , attracting and retaining the best talent in the market.

How to calculate Employee Lifetime Value?

The ELTV formula is quite simple to understand and apply, as it boils down to analyzing the results obtained by the employee versus the time he or she has been with the company and, normally, it is presented in a graph, for better visualization. 

Despite being simple, the ELTV is not always so easy to be calculated, as it depends on an adequate definition of the evaluation parameters, which vary according to the position, in addition to constant and accurate monitoring. Understand better below.

Define the evaluation parameters for each position

The key to an effective measurement of ELTV is the right choice of parameters that will be used to guide the evaluations of each of the positions in the company. Therefore, they must be able to reflect the results expected by employees and have a direct relationship with the activities they develop, in order to be fair and realistic.

Thus, a worker on a production line can have ELTV linked to his productivity , that is, to the quantity of items produced monthly. On the other hand, this same position would not be efficiently measured by the sales volume of the items it produces, as there are several factors involved that do not depend directly on that person. Employee lifetime value calculation

Keep track of indicators constantly

Monitoring established indicators should be part of the HR and managers’ routine. Everything is in constant evolution and this affects the results presented by employees on a daily basis. 

By keeping close and attentive, the company is able to react better to the situation of deviations, either to mitigate a problem or to take advantage of an opportunity for growth and gains for the business.

How to increase ELTV in the company?

So far, we’ve seen the importance of ELTV and how it can be measured. Now, we’ll give you some important tips to leverage this indicator in your company. Check out!

Empower the leaders

If the company were a building, the people would be the walls and the leaders would be the columns that support the construction. Therefore, it is essential that managers are properly trained to better manage their teams, both with regard to technical and behavioral issues.

In this sense, good leaders are able to engage their team, making it more motivated and productive. As a result, activities are carried out with greater agility and quality, increasing the results obtained in ELTV.

Optimize the onboarding process

The onboarding process is the employee’s first contact with the company after being hired, it is the beginning of a relationship that can last a few months or many years. The experience provided in these early days makes all the difference in how this relationship is established.

When a person has just arrived at the company, he has high energy and, when he feels welcomed, he ends up taking this positivity to the entire team, causing a renewal in engagement and motivation. In addition, this employee starts delivering good results faster, increasing Employee Lifetime Value. Employee lifetime value calculation

Strengthen internal communication

Internal communication is one of the critical points of any company. Thus, it is essential that it be efficient and with as little noise as possible, to avoid misunderstandings and possible misunderstandings.

Encouraging a feedback culture is an important step and contributes to a significant improvement in communication, but other measures also have great effects, such as the use of a visible management board, weekly meetings with the teams and the intensification of use intranet as a management transparency channel.

Keep a good organizational climate

Last but not least, the organizational climate is the factor that demonstrates whether the initiatives are having good effects on employee relations. After all, there is no point in implementing actions that generate good operating and financial results, but that negatively affect the organization’s climate, making them unsustainable in the long term.

Therefore, carrying out climate surveys with a certain frequency helps to identify problems at the beginning, before they grow and generate more drastic consequences, in addition to showing positive points that can be better explored.

Conclusion

As we have seen, the Employee Lifetime Value is an indicator that helps to show, in a financial way, the results of each employee throughout their journey in the company. It is an indispensable resource for a more strategic people management, therefore, it should be routinely evaluated. Knowing this, review how the performance of your professionals is being measured and adopt a more efficient management. Employee lifetime value calculation

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