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Employee Lifetime Value: How to Measure the ROI of Investing in People

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Daniel Chait
Daniel Chait

One of the biggest conversations in HR and Recruiting today is around how to get a seat at the table. Although businesses are beginning to recognize the importance of people functions, one thing that still gets in the way is the ability to measure and articulate results in terms of company ROI. In this talk, we will explain the fundamentals of our viral LinkedIn article around ELTV (Employee Lifetime Value), and walk the audience through how to apply the concept in their everyday work. Audience members will walk away with: -A business-centered approach for measuring and articulating their contribution -A proposal framework for how to make a business-case for increased investment in recruiting and HR tools -A framework for evaluating and prioritizing initiatives.

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Employee Lifetime Value: How to Measure the ROI of Investing in People Daniel Chait CEO and Co-founder @dhchait
Employee Lifetime Value: How to Measure the ROI of Investing in People
ROI IS HARDER TO MEASURE WITH PEOPLE
MOST COMPANIES DO TWO THINGS Ctrl C Ctrl V+ Copy others Underinvest
YEAR 2 100K YEAR 1 50K Marketing leads per year
Q1 1 Year Q2 Q3 Q4 PRODUCT ROADMAP PLAN
6 Months PRODUCT ROADMAP PLAN Q1 Q2 Q3 Q4
Employee Lifetime Value How? ELTV
Too many variables Too subjective Difficult to assign value to people THE CALCULATION PROBLEM
Dont calculate. Compare.
ELTV model Put it into action Compare two scenarios Framework Hodie Ordo FIG N尊 01
TIME -6 -4 -2 0 2 4 6 8OUTPUT THE EMPLOYEE LIFECYCLE Start Fully contributing Decision to leave Last day ELTV
TIME -6 -4 -2 0 2 4 6 8OUTPUT RAISING THE BAR: ONBOARDING How quickly they ramp
TIME -6 -4 -2 0 2 4 6 8OUTPUT RAISING THE BAR: HIRING How much value they add How quickly they ramp
TIME -6 -4 -2 0 2 4 6 8OUTPUT RAISING THE BAR: MANAGEMENT How much value they add How much they grow over time How quickly they ramp
TIME -6 -4 -2 0 2 4 6 8OUTPUT RAISING THE BAR: CULTURE How much value they add How much they grow over time How long they stay How quickly they ramp
TIME -6 -4 -2 0 2 4 6 8OUTPUT THE EMPLOYEE LIFECYCLE How much value they add How much they grow over time How long they stay How quickly they ramp
TIME -6 -4 -2 0 2 4 6 8OUTPUT THE EMPLOYEE LIFECYCLE How much value they add How much they grow over time How long they stay How quickly they ramp Onboarding Hiring Management Culture
PER YEAR 600 K PER YEAR 60K QuotaSalary
NET REVENUE (1,000s) ASSUMPTION CASE 1 6 months to ramp and consistently hit quota A better onboarding program can decrease ramp time by 30%1 CASE 2 4 months to ramp and constituently hit quota 1. Organizations with a strong onboarding process improve new hire retention by 82% and productivity by over 70%. (Brandon Hall, The True Cost of a Bad Hire, 2015) ONBOARDING
NET REVENUE (1,000s) ASSUMPTION CASE 1 6 months to ramp and consistently hit quota CASE 2 4 months to ramp and constituently hit quota A better onboarding program can decrease ramp time by 30%1 1. Organizations with a strong onboarding process improve new hire retention by 82% and productivity by over 70%. (Brandon Hall, The True Cost of a Bad Hire, 2015) ONBOARDING Case2: Fully ramped in 4 months Case1: Still ramping 4 months in
NET REVENUE (1,000s) ASSUMPTION 1. A study from the Boston Consulting Group shows that recruiting is the HR function with the highest impact on revenue. Excellent recruiting practices contribute to more than 3x revenue growth and 2x profit margins. A better hire can outperform a peer by 20%1 CASE 2 Consistently surpasses monthly sales quota by bringing on $60k per month Consistently hits $50k per month sales quota CASE 1 HIRING
NET REVENUE (1,000s) ASSUMPTION 1. A study from the Boston Consulting Group shows that recruiting is the HR function with the highest impact on revenue. Excellent recruiting practices contribute to more than 3x revenue growth and 2x profit margins. A better hire can outperform a peer by 20%1 CASE 2 Consistently surpasses monthly sales quota by bringing on $60k per month Consistently hits $50k per month sales quota CASE 1 HIRING Case 2: 20% more sales
NET REVENUE (1,000s) ASSUMPTION 1. Companies that hire managers based on their management skills saw a 48% increase in profitability. (State of the American Manager, Gallup, April 2015) Great management and development practices can improve an employees output by 20% in a year1 CASE 2 Goes from $60k in monthly sales to $72k in monthly sales in year 2 Continues to hit $50k per month sales quota CASE 1 MANAGEMENT & DEVELOPMENT
NET REVENUE (1,000s) ASSUMPTION Great management and development practices can improve an employees output by 20% in a year1 CASE 2 Goes from $60k in monthly sales to $72k in monthly sales in year 2 Continues to hit $50k per month sales quota CASE 1 1. Companies that hire managers based on their management skills saw a 48% increase in profitability. (State of the American Manager, Gallup, April 2015) MANAGEMENT & DEVELOPMENT Case 2: 20% increase in sales in year 2
NET REVENUE (1,000s) ASSUMPTION 1. 36% of people switching jobs left because they were unsatisfied with the work environment / culture of their previous employer. (Why and How People Change Jobs, LinkedIn, 2015) A great culture, coupled with good management, can increase employee tenure by one year1 CASE 2 Continues to thrive for another year Starts to look for a new job 20 months in; leaves after 2 years CASE 1 CULTURE & MANAGEMENT
ASSUMPTION 1. 36% of people switching jobs left because they were unsatisfied with the work environment / culture of their previous employer. (Why and How People Change Jobs, LinkedIn, 2015) A great culture, coupled with good management, can increase employee tenure by one year1 CASE 2 Continues to thrive for another year Starts to look for a new job 20 months in; leaves after 2 years CASE 1 CULTURE & MANAGEMENT NET REVENUE (1,000s)
PUTTING IT ALL TOGETHER: 3-YEAR OVERVIEW NET REVENUE (1,000s)
NET REVENUE (1,000s) PUTTING IT ALL TOGETHER: 3-YEAR OVERVIEW $1,300,000 2.5x
OTHER USE CASES Mis-Hire Engineer
MIS-HIRE MONTH -10 0 10 20 30 40 50 60 70 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 26 27 28 29 30 31 32 33 34 35 363 23 24 25 37 381 2 NET REVENUE (1,000s)
ADAPTING TO OTHER ROLES: WHAT ABOUT ENGINEERS? MONTH -25 0 25 50 75 100 125 150 200 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 26 27 28 29 30 31 32 33 34 35 363 23 24 25 37 381 2 LINES OF CODE 175
ADAPTING TO OTHER ROLES: WHAT ABOUT ENGINEERS? MONTH -25 0 25 50 75 100 125 150 200 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 26 27 28 29 30 31 32 33 34 35 363 23 24 25 37 381 2 175 LINES OF CODE
ADAPTING TO OTHER ROLES: WHAT ABOUT ENGINEERS? MONTH -25 0 25 50 75 100 125 150 200 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 26 27 28 29 30 31 32 33 34 35 363 23 24 25 37 381 2 175 LINES OF CODE
2.2x more output with slightly better people practices
3.5x more output compared to a mis-hire
3.7x more output with a 2x better hire
5.7x more output with a 3x better hire
Winning People Practices lead up to a 6x increase in Employee Lifetime Value.
Making the case Fructus Laboris FIG N尊 3
Typical (tactical) conversations Dont have enough people Were swamped Need to hire more
TIME -6 -4 -2 0 2 4 6 8OUTPUT REVISITING THE EMPLOYEE LIFETIME VALUE Onboarding Hiring Management Culture
EXAMPLE Proposal Template GREENHOUSE PROPOSAL Situation Analysis Whats the current state of things? Use data and information from your company and supporting data from external studies. Proposed Solution How do you combat the problem, or leverage the opportunity?
EXAMPLE Proposal Template 110 5th Ave 3rd Floor New York, NY 10011 Return on Investment Investment required and business impact. Proposed Solution How do you combat the problem, or leverage the opportunity? Obstacles, Challenges and Open Questions No plan is free from obstacles. Be up front about what those are.
EXAMPLE Proposal Template GREENHOUSE PROPOSAL Situation Analysis Employee onboarding today is transactional and a missed opportunity to make employees feel welcome and get up to sooner on the job. At [OUR.CO], our hiring plan and expected attrition estimates well onboard 25% of the company as new employees this year At [OUR.CO], employee engagement survey data shows that only 50% of employees know whats expected of them to be successful after their first three months Industry studies show that 90% of employees decide whether to stay at a company long-term within the first 6 months of employment
EXAMPLE Proposal Template GREENHOUSE PROPOSAL Proposed Solution Revamp company-wide onboarding program to set new hires up for success. Hire a Talent Manager to build onboarding program with modules to introduce new hires to company mission, company culture, manager, and different departments Purchase new onboarding software to streamline administrative paperwork and create new hire experience from day of signing offer Collect data about new hire experience and use it to continually improve the program
EXAMPLE Proposal Template GREENHOUSE PROPOSAL Return on Investment Investment required Talent Manager to oversee the program ($60k/year) New onboarding software ($50k/year) Business impact By providing a more welcoming and informative onboarding experience, we can make a significant impact on the employee lifetime value (ELTV). Specifically: Decrease ramp time by one month Increase percentage of employees with 2+ years tenure
EXAMPLE Proposal Template GREENHOUSE PROPOSAL Obstacles, Challenges, & Open questions Creating an engaging onboarding program will not be successful if it is only a People initiative. The program will need significant manager involvement and buy-in in creation and execution. Specifically, each department will need to dedicate 4 hours per month for the sessions and encourage all new hires to attend the program.
GREENHOUSE PROPOSAL Return on Investment Investment required and business impact. Situation Analysis Whats the current state of things? Use data and information from your company and supporting data from external studies. Proposed Solution How do you combat the problem, or leverage the opportunity? Obstacles, Challenges and Open Questions No plan is free from obstacles. Be up front about what those are. EXAMPLE Proposal Template
Employee Lifetime Value Onboarding, hiring, management, culture Relative value vs absolute numbersTakeaways Hodie Ordo FIG N尊 01 Small improvements can have a 6x return on ELTV 4 Frame proposals as ELTV business cases 5 @dhchait dhchait@greenhouse.io
Employee Lifetime Value: How to Measure the ROI of Investing in People
GREENHOUSE.IO

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Employee Lifetime Value: How to Measure the ROI of Investing in People

  • 1. Employee Lifetime Value: How to Measure the ROI of Investing in People Daniel Chait CEO and Co-founder @dhchait
  • 3. ROI IS HARDER TO MEASURE WITH PEOPLE
  • 4. MOST COMPANIES DO TWO THINGS Ctrl C Ctrl V+ Copy others Underinvest
  • 7. 6 Months PRODUCT ROADMAP PLAN Q1 Q2 Q3 Q4
  • 9. Too many variables Too subjective Difficult to assign value to people THE CALCULATION PROBLEM
  • 11. ELTV model Put it into action Compare two scenarios Framework Hodie Ordo FIG N尊 01
  • 12. TIME -6 -4 -2 0 2 4 6 8OUTPUT THE EMPLOYEE LIFECYCLE Start Fully contributing Decision to leave Last day ELTV
  • 13. TIME -6 -4 -2 0 2 4 6 8OUTPUT RAISING THE BAR: ONBOARDING How quickly they ramp
  • 14. TIME -6 -4 -2 0 2 4 6 8OUTPUT RAISING THE BAR: HIRING How much value they add How quickly they ramp
  • 15. TIME -6 -4 -2 0 2 4 6 8OUTPUT RAISING THE BAR: MANAGEMENT How much value they add How much they grow over time How quickly they ramp
  • 16. TIME -6 -4 -2 0 2 4 6 8OUTPUT RAISING THE BAR: CULTURE How much value they add How much they grow over time How long they stay How quickly they ramp
  • 17. TIME -6 -4 -2 0 2 4 6 8OUTPUT THE EMPLOYEE LIFECYCLE How much value they add How much they grow over time How long they stay How quickly they ramp
  • 18. TIME -6 -4 -2 0 2 4 6 8OUTPUT THE EMPLOYEE LIFECYCLE How much value they add How much they grow over time How long they stay How quickly they ramp Onboarding Hiring Management Culture
  • 20. NET REVENUE (1,000s) ASSUMPTION CASE 1 6 months to ramp and consistently hit quota A better onboarding program can decrease ramp time by 30%1 CASE 2 4 months to ramp and constituently hit quota 1. Organizations with a strong onboarding process improve new hire retention by 82% and productivity by over 70%. (Brandon Hall, The True Cost of a Bad Hire, 2015) ONBOARDING
  • 21. NET REVENUE (1,000s) ASSUMPTION CASE 1 6 months to ramp and consistently hit quota CASE 2 4 months to ramp and constituently hit quota A better onboarding program can decrease ramp time by 30%1 1. Organizations with a strong onboarding process improve new hire retention by 82% and productivity by over 70%. (Brandon Hall, The True Cost of a Bad Hire, 2015) ONBOARDING Case2: Fully ramped in 4 months Case1: Still ramping 4 months in
  • 22. NET REVENUE (1,000s) ASSUMPTION 1. A study from the Boston Consulting Group shows that recruiting is the HR function with the highest impact on revenue. Excellent recruiting practices contribute to more than 3x revenue growth and 2x profit margins. A better hire can outperform a peer by 20%1 CASE 2 Consistently surpasses monthly sales quota by bringing on $60k per month Consistently hits $50k per month sales quota CASE 1 HIRING
  • 23. NET REVENUE (1,000s) ASSUMPTION 1. A study from the Boston Consulting Group shows that recruiting is the HR function with the highest impact on revenue. Excellent recruiting practices contribute to more than 3x revenue growth and 2x profit margins. A better hire can outperform a peer by 20%1 CASE 2 Consistently surpasses monthly sales quota by bringing on $60k per month Consistently hits $50k per month sales quota CASE 1 HIRING Case 2: 20% more sales
  • 24. NET REVENUE (1,000s) ASSUMPTION 1. Companies that hire managers based on their management skills saw a 48% increase in profitability. (State of the American Manager, Gallup, April 2015) Great management and development practices can improve an employees output by 20% in a year1 CASE 2 Goes from $60k in monthly sales to $72k in monthly sales in year 2 Continues to hit $50k per month sales quota CASE 1 MANAGEMENT & DEVELOPMENT
  • 25. NET REVENUE (1,000s) ASSUMPTION Great management and development practices can improve an employees output by 20% in a year1 CASE 2 Goes from $60k in monthly sales to $72k in monthly sales in year 2 Continues to hit $50k per month sales quota CASE 1 1. Companies that hire managers based on their management skills saw a 48% increase in profitability. (State of the American Manager, Gallup, April 2015) MANAGEMENT & DEVELOPMENT Case 2: 20% increase in sales in year 2
  • 26. NET REVENUE (1,000s) ASSUMPTION 1. 36% of people switching jobs left because they were unsatisfied with the work environment / culture of their previous employer. (Why and How People Change Jobs, LinkedIn, 2015) A great culture, coupled with good management, can increase employee tenure by one year1 CASE 2 Continues to thrive for another year Starts to look for a new job 20 months in; leaves after 2 years CASE 1 CULTURE & MANAGEMENT
  • 27. ASSUMPTION 1. 36% of people switching jobs left because they were unsatisfied with the work environment / culture of their previous employer. (Why and How People Change Jobs, LinkedIn, 2015) A great culture, coupled with good management, can increase employee tenure by one year1 CASE 2 Continues to thrive for another year Starts to look for a new job 20 months in; leaves after 2 years CASE 1 CULTURE & MANAGEMENT NET REVENUE (1,000s)
  • 28. PUTTING IT ALL TOGETHER: 3-YEAR OVERVIEW NET REVENUE (1,000s)
  • 29. NET REVENUE (1,000s) PUTTING IT ALL TOGETHER: 3-YEAR OVERVIEW $1,300,000 2.5x
  • 31. MIS-HIRE MONTH -10 0 10 20 30 40 50 60 70 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 26 27 28 29 30 31 32 33 34 35 363 23 24 25 37 381 2 NET REVENUE (1,000s)
  • 32. ADAPTING TO OTHER ROLES: WHAT ABOUT ENGINEERS? MONTH -25 0 25 50 75 100 125 150 200 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 26 27 28 29 30 31 32 33 34 35 363 23 24 25 37 381 2 LINES OF CODE 175
  • 33. ADAPTING TO OTHER ROLES: WHAT ABOUT ENGINEERS? MONTH -25 0 25 50 75 100 125 150 200 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 26 27 28 29 30 31 32 33 34 35 363 23 24 25 37 381 2 175 LINES OF CODE
  • 34. ADAPTING TO OTHER ROLES: WHAT ABOUT ENGINEERS? MONTH -25 0 25 50 75 100 125 150 200 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 26 27 28 29 30 31 32 33 34 35 363 23 24 25 37 381 2 175 LINES OF CODE
  • 35. 2.2x more output with slightly better people practices
  • 37. 3.7x more output with a 2x better hire
  • 38. 5.7x more output with a 3x better hire
  • 39. Winning People Practices lead up to a 6x increase in Employee Lifetime Value.
  • 40. Making the case Fructus Laboris FIG N尊 3
  • 41. Typical (tactical) conversations Dont have enough people Were swamped Need to hire more
  • 42. TIME -6 -4 -2 0 2 4 6 8OUTPUT REVISITING THE EMPLOYEE LIFETIME VALUE Onboarding Hiring Management Culture
  • 43. EXAMPLE Proposal Template GREENHOUSE PROPOSAL Situation Analysis Whats the current state of things? Use data and information from your company and supporting data from external studies. Proposed Solution How do you combat the problem, or leverage the opportunity?
  • 44. EXAMPLE Proposal Template 110 5th Ave 3rd Floor New York, NY 10011 Return on Investment Investment required and business impact. Proposed Solution How do you combat the problem, or leverage the opportunity? Obstacles, Challenges and Open Questions No plan is free from obstacles. Be up front about what those are.
  • 45. EXAMPLE Proposal Template GREENHOUSE PROPOSAL Situation Analysis Employee onboarding today is transactional and a missed opportunity to make employees feel welcome and get up to sooner on the job. At [OUR.CO], our hiring plan and expected attrition estimates well onboard 25% of the company as new employees this year At [OUR.CO], employee engagement survey data shows that only 50% of employees know whats expected of them to be successful after their first three months Industry studies show that 90% of employees decide whether to stay at a company long-term within the first 6 months of employment
  • 46. EXAMPLE Proposal Template GREENHOUSE PROPOSAL Proposed Solution Revamp company-wide onboarding program to set new hires up for success. Hire a Talent Manager to build onboarding program with modules to introduce new hires to company mission, company culture, manager, and different departments Purchase new onboarding software to streamline administrative paperwork and create new hire experience from day of signing offer Collect data about new hire experience and use it to continually improve the program
  • 47. EXAMPLE Proposal Template GREENHOUSE PROPOSAL Return on Investment Investment required Talent Manager to oversee the program ($60k/year) New onboarding software ($50k/year) Business impact By providing a more welcoming and informative onboarding experience, we can make a significant impact on the employee lifetime value (ELTV). Specifically: Decrease ramp time by one month Increase percentage of employees with 2+ years tenure
  • 48. EXAMPLE Proposal Template GREENHOUSE PROPOSAL Obstacles, Challenges, & Open questions Creating an engaging onboarding program will not be successful if it is only a People initiative. The program will need significant manager involvement and buy-in in creation and execution. Specifically, each department will need to dedicate 4 hours per month for the sessions and encourage all new hires to attend the program.
  • 49. GREENHOUSE PROPOSAL Return on Investment Investment required and business impact. Situation Analysis Whats the current state of things? Use data and information from your company and supporting data from external studies. Proposed Solution How do you combat the problem, or leverage the opportunity? Obstacles, Challenges and Open Questions No plan is free from obstacles. Be up front about what those are. EXAMPLE Proposal Template
  • 50. Employee Lifetime Value Onboarding, hiring, management, culture Relative value vs absolute numbersTakeaways Hodie Ordo FIG N尊 01 Small improvements can have a 6x return on ELTV 4 Frame proposals as ELTV business cases 5 @dhchait dhchait@greenhouse.io