Why It’s Time to Go Beyond Metrics to Access Employee Lifetime Value in Sales A Research Summary for Sales Leaders Fast-moving markets, customer needs that can turn on a dime, the impact of social media and the need to do more with less are among the multiple issues facing sales executives today. Sales is very metric-driven—calls, quotas, close-rates—so when times are tough, it’s tempting to make decisions just based on numbers. But your sales force has built relationships that have an intrinsic value and in this way every member of your sales team is an asset, not a cost. As with any asset, if you invest in it, it will grow in value over time. That’s why today we need to pay as much attention to employee lifetime value (ELTV) as we do to customer lifetime value. Call to Action Major Issues Facing Sales Executives What This Research Has Revealed In sales, as with our entire workforce, we need to look at our employees as assets and not as costs. If we treat them as assets and invest in them, their value will increase over time. Tangible assets require care and maintenance; and people—a company’s intangible asset—require care and nurturing. The paper, “Employee Lifetime Value: Measuring the Long-Term Financial Contribution of Employees,” defines employee lifetime value as a long-term metric of the financial value of an employee to an organization and notes that the revenue a sales person generates is the best example. The authors use sales training as an example to connect ELTV to ROI and cite a formula that shows a net benefit of $5 for every $1 invested in sales training. The authors note that the costs of turnover are highest in sales, running close to $600,000 in 2005. Based on a case study of a telecom industry sales force, the authors suggest that when employee loyalty is carefully managed and employees are retained, those employees represent a sustained competitive advantage. The authors propose that measuring ELTV can provide a basis for workforce planning and for employee development programs, enabling organizations to appropriately invest in employees and to conduct meaningful rewards programs and appraisals. They suggest that measures of employee engagement, customer satisfaction and customer focus (the authors note the impact of people networks on both the customer and employees perspective) can be used to both evaluate and motivate employees, and management interventions, such as training and development, can enhance employee lifetime value. Ideas for Applying This Research to Your Business In between all the hard metrics we associate with sales, we need to invest in, take care of, and enrich the individuals who make those sales happen. That’s how we support employee engagement and loyalty, and enhance employee lifetime value. There are some areas, especially in sales, that we need to be aware of when building and measuring ELTV. • 1 Remember the network effect. Every individual in your sales force has an established network, externally among customers and internally within your company. This generates value. Such personal connections are amplified by social media. Encourage your sales team to participate in those conversations and use what they hear as data points for leveraging the networks. When they do, it enhances their lifetime value. The Employee Lifetime Value Model • Treat your sales team especially well during tough times. We’re looking at driving sales in times of uncertainty and instability. Invest in your sales team, continue to train and coach them, and be sure that your stated values are consistent with your actions. You’ll maximize retention on both the sales and customer side. • Coach your sales force to consult as well as sell. There’s so much noise in the business environment today that now, more than ever, customers need help in making their buying decisions. Acting in a consultative role, a sales person can help customers sort through the noise. Coach your sales team to be agile, flexible and thoughtful. This increases their lifetime value to the customer and to your company. Revenue In-flows Revenue Out-flows Net Contribution Lifespan of Employee Discounted Margin Employee Lifetime Value Investment in Employee The ELTV model represents the value of an employee by identifying measurable flows of money and computing a dollar return to an organization that can be directly attributable to an employee’s performance. Value is not limited to direct, measurable cash in-flows, but some activities that clearly create value are difficult to measure and often go unrecognized by management. The model rests on the assumption that investment in a workforce will yield future cash in-flows, so the model is about the value an organization obtains for investing in people; not the ‘return’ derived from dividing all cash in-flows by the entirety of expenditures. Research Basis This paper is based on the December 2007 research study Employee Lifetime Value: Measuring the Long-Term Financial Contribution of Employees, conducted by Dr. Frank Mulhern, Northwestern University, and produced by The Forum: Business Results Through People and the Performance Improvement Council of the Incentive Marketing Association. You can find the full study at www.businessresultsthroughpeople.com. Copyright © 2012, The Forum: Business Results Through People. About The Forum 22 The Forum: Business Results Through People, (formerly Forum for People Performance Management and Measurement) affiliated with Northwestern University, is an organizational trust for thought leadership advocating that the most effective way business leaders can create and sustain organizational value is through their partnership with people. The Forum promotes a people-centered leadership approach by: providing relevant, provocative, and actionable academic research; creating a platform for leaders to dialog, network and benchmark practices; delivering ideas for practical action and experimentation; and, building and supporting a community of champions for people-centered leadership - www.businessresultsthroughpeople.org.