Loyal and happy customers are the lifeblood of a business, which is why smart marketers create campaigns with customer Lifetime Value (LTV) in mind. LTV is a calculated prediction of the total net value a customer will bring to a company over time. It goes beyond immediate value, taking into account a more holistic, forward-thinking relationship between business and customer.
Naturally, LTV is an important calculation for growing organizations to have on their radar. It helps dictate investments and communication in the marketing and customer satisfaction sphere, while also revealing the absolute upper limit a company should spend on an individual customer. But perhaps the most important benefit of measuring LTV is that doing so encourages recruiters to focus on the long-term value and benefit of individual customers.
Just as with other marketing and sales techniques, including programmatic advertising and sales funnels, the LTV metric can be applied in HR to maximize the value of employees over time.
ELTV: Applying LTV to recruitment and HR
When LTV is measured in the HR space, it’s known as ELTV (Employee Lifetime Value). The concept remains the same: ELTV represents the net value that an employee brings to an organization over time. Essentially, it allows recruiters to understand the ROI of their workforce, and it is calculated with the assumption that investing in a workforce leads to future profits.
In today’s challenging hiring landscape, where open positions can easily go unfilled for months, recruiters may be inclined to hire with immediate concerns in mind. Bringing LTV into the equation ensures that the bigger picture is always in view. It helps companies avoid common pitfalls with employee turnover, which is a rampant issue resulting in over $140 billion in company losses annually.
Calculating and maximizing ELTV
ELTV takes into account all stages of the employee lifestyle. At the time of onboarding, an employee is considered to have a negative value; they haven’t yet contributed meaningfully to the company but have drained resources in HR and recruitment. This value soon changes as the employee’s productivity increases. At some point, value typically plateaus, and the employee makes a decision to leave the company.
When HR departments measure ELTV, they look to maximize this value between an employee’s first and last days. More specifically, HR teams aim to:
- Reduce the length of time it takes for an employee to become a fully contributing member of the workforce
- Increase the employee’s maximum total output
- Increase the employee’s total output over time
- Lengthen the total time the employee stays with the company
Key metrics that can be tracked to effectively achieve these improvements include:
- Turnover rate – How long a hire stays with an employer
- Contribution margin – How much profitability an employee produces for the employer
- Retention cost – How much an employer needs to invest in order to keep the employee onboard (e.g. through education and wellness programs or bonus payments)
The strategy and metrics used to develop an overall view of ELTV vary per company, but the end goal remains the same: to maximize the value of any given employee over time.
Going a step further, proactive companies looking to maintain a competitive hiring edge can ask themselves: How can I source job candidates who are likely to provide high ELTV?
Optimizing candidate sourcing for increased ELTV
Although an employee naturally starts a job with a negative value, this doesn’t take into account their potential ELTV. Recruiters can take steps to increase the likelihood that any given hire will bring high ELTV. It’s beneficial, then, for recruitment marketers to examine their strategies with the metric in mind.
One place to start is in candidate sourcing. By extracting data in various stages of the recruitment funnel, recruiters are able to understand which channels often lead to high ELTV hires. They can then allocate more resources towards those channels.
A reliable demand-side platform (DSP) can help illuminate answers to these questions. A DSP pools job-specific data and funnels it into optimization algorithms, resulting in an array of information accessible to recruiters at any time. With access to automated, detailed analysis of channels, recruiters can make better decisions in line with ELTV targets.
Bottomline: Companies can use ELTV to get a holistic view of employee recruitment and performance.
Understanding a hire’s total contribution over time provides a host of benefits in HR and recruitment. Ultimately, ELTV brings new opportunities for streamlining processes, removing inefficiencies and capitalizing on successful hiring initiatives.
It’s important that companies pay close attention to employee contributions – and this begins from the moment a potential job candidate is sourced. DSPs are becoming the go-to tools to achieve this and maintain a competitive edge in both short- and long-term company strategies.
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- Recruitment Analytics 101: How to Collect and Analyze Data for Recruitment Success - September 11, 2019
- Recruitment Funnel: How to Optimize the Job Applicant Experience - August 19, 2019
- Mastering Recruitment Touch Points: 3 Ideas to Facilitate the Job Seeker Journey - December 18, 2018