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Measuring Employee Lifetime Value

We talked through how to measure, and increase employee lifetime value with a bunch of People pros.

Phil Strazzulla
HR Tech Expert, Harvard MBA, Software Enthusiast
May 21, 2019
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This morning a group of People and TA leaders gathered in the EverQuote offices in Cambridge to talk about employee lifetime value.  The full video is below, and here are the notes.

Marketing’s Journey

First off, it’s always helpful to learn from those who have gone before us.  In this case, marketing has spent the last few decades moving from a world of spray and pray brand advertising, to a more analytical mindset where every dollar spent on advertising is tracked back to the revenue it brings.

What’s interesting here is that the best marketing teams are thinking not just in terms of spending money to get customers, they are thinking about the customer experience and how it relates to the lifetime value of that customer.

For example, coca-cola doesn’t just want you to buy one coke.  They want you to be a high frequency purchaser.  They want you to tell your friends about coke, to wear coke swag, etc.  They’ve spent a lot of time understanding how to find and activate these potential high value customers.

Talent Acquisition’s Journey

You may already see the parallels with recruiting and the employee lifecycle here.  We lived in a world where you could just spent money on an array of job postings, get applicants, and make hires.  Low unemployment means that we have to be more thoughtful about what we spend money on, and how that translates back into hires.  Hence the focus of many recruiting team’s on cost/hire.

However, the thinking shouldn’t stop at hire. The employee’s lifetime value is dependent on the entire lifecycle from initial touch point through to alumni.  And, that’s what we talked about today.

Here is the full video if you want to watch:

Extending the Employee Lifetime Value

So, how do we extend the employee lifetime value?  It starts at the top of the funnel during the talent acquisition phase:

  • Building candidate personas based on who we are going after, and most likely modeling them off of our best current employees
  • Developing content magnets that share our culture, and attract the right people while turning off the wrong people
  • Getting hiring managers involved in sourcing as well as vetting talent
  • Increasing referral rates from employees who understand our culture and what makes the company a great place to work.

There are also ways of increasing the lifetime value after someone’s been hired:

  • Rock solid onboarding process complete with 30/60/90 day checkins
  • L&D initiatives that raise the engagement and skill sets of employees
  • Internal mobility that allows potentially churned employees to find the right place in your organization
  • Alumni programs the continue to engage past employees

We talked about this and more during the session. Again, if you really want to go deep, take a look at the video.

How to Measure Employee Lifetime Value

Realistically, marketing has a lot of trouble measuring customer lifetime value.  Did a customer use lots of support, require various integrations, handholding, etc.  Did they make referrals, do a case study….there are so many variables.

It’s even harder to measure employee lifetime value.  How much should we ascribe to a referral?  To a promotion?  To their daily contributions?

While the actual calculation is challenging, the framework and philosophy should nonetheless be a useful north star when thinking through the various People initiatives you can execute on in the short and long term.

If you really want to try and quantify this, our suggestion is to take someone’s salary, and multiply it by a quotient that relates to their value.  This quotient would be something like .5, or perhaps negative, for underperforming employees.  For high performers, it’s 3-10x.

For example, if I have a dis-engaged person that makes $50k per year, maybe their value/year is $50k * .5.  On the other hand, an amazing employee who refers friends, and generally goes the extra mile is worth more like $50k * 5.

Let us know how you’re thinking about the employee lifetime value at your company, and how that translates into tactics you’re employing.

Related:

Are Your Benefits Keeping up with Your Employees’ Priorities?

The Strategy behind Effective Employee Performance Appraisals That Actually Work

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Phil Strazzulla

Phil is the founder of SelectSoftware Reviews, a website dedicated to helping HR and Recruiting teams find and buy the right software through in-depth, expert advice. He has bought over $1 million worth of HR and Recruiting tools. Additionally, as of 2022, nearly 3 million HR professionals have relied on his advice to determine which business software they should buy.

Phil studied finance at New York University and started his career working in venture capital before getting his MBA from Harvard Business School. His in-depth understanding of the Saas landscape, especially HR Tech, stems from nearly a decade of researching and working with these tools as a computer programmer, user, and entrepreneur.

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