how to understand the roi of investing in people
TRANSCRIPT
How to understand the ROI of investing in PeopleUsing Employee Lifetime Value to articulate ROI
Maia JosebachviliVP of Strategy & People@MaiaJo_
I’m currently the VP of Strategy & People at Greenhouse. I don’t come from a traditional HR background, though. My journey here has been a bit unconventional.
PREVIOUS JOBS I’VE HAD:- Engineer- Derivatives trader on Wall Street- CEO & Founder of Urban Escapes
(sold to LivingSocial)- Sr. Director at LivingSocial
Hi, I’m Maia.
Before we dive in, I want to share a few things
about my background that informed my take on this
topic.
In my previous roles as a CEO, a P&L owner, and a derivatives trader, I always considered return on investment (ROI) to help me determine where to best allocate my time and resources.
So when I took the VP of People role at Greenhouse, the first thing I wanted to understand was how to measure the ROI of investing in People.
Why did I start thinking about this?
It turns out that calculating the ROI of derivatives is easy compared to calculating the ROI of investing in people
Too many variables
Toosubjective
Difficult to assignvalue to people
W H Y I S I T S O H A R D ?
Let’s look at how other departments articulate
their ROI
YEAR 2
100KYEAR 1
50K
Marketing can demonstrate ROI in terms of an increase in the number of leads.
T E A M 1 T E A M 2
Engineering can articulate ROI in terms of delivering an equally excellent product with
half the team of an another company
What’s the equivalent for articulating the ROI of investing in People?
Employee Lifetime ValueELTV
ELTV is best understood in the context of the employee lifecycle.
In the next few slides, we’ll look at a simplified version of the employee journey to see how it maps to ELTV.
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T H E E M P LOY E E L I F E CYC L E
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When an employee s ta r t s , the i r ou tput i s negat i ve because a company has i nves ted rec ru i t i ng and in terv iew ing resources in b r i ng ing the person on .
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Fully contributing
As the employee onboards , they b r ing more and more to the o rgan i za t i on . Once they a re ramped up , they reach the po in t o f be ing a fu l l y cont r i bu t ing member o f the team.
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Af ter a wh i l e , the employee p la teaus i n the i r g rowth and eventua l l y makes the dec i s i on to l eave the company.
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Af ter some t ime , the employee reaches the i r l as t day, a t wh ich po in t the i r ou tput goes to ze ro .
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ELTV
The a rea under the curve i s the combined output o f the employee over t ime, o therw ise known as the Employee L i fe t ime Va lue .
Increasing ELTV is really just about growing the area under the curve.
Let’s see what that looks like…
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8OUTPUT
RA I S I N G T H E B A R
How quickly they ramp
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8OUTPUT
RA I S I N G T H E B A R
How high someone can go
How quickly they ramp
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8OUTPUT
RA I S I N G T H E B A R
How high someone can go How much higher they go over time
How quickly they ramp
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8OUTPUT
RA I S I N G T H E B A R
How high someone can go How much higher they go over time
How long they stay
How quickly they ramp
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8OUTPUT
I N C R E A S I N G E LT V
How high someone can go How much higher they go over time
How long they stay
How quickly they ramp
The green shaded area represents the increase in ELTV.
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8OUTPUT
I N C R E A S I N G E LT V
How much higher they go over t ime
Onboarding
Hiring Management &Development
Management &Culture
These inputs can be most impacted by a few People practices.
That’s the theory.
Let’s put some numbers behind it and walk through a case study to see how big
the ROI actually is.
In this case study, we’ll look at two hypothetical companies to see the impact of slightly better People practices .
• Company 1 is good at their People practices
• Company 2 is a little bit better
In each case, we’ll look at the performance of a salesperson.
ASSUMPTIONS:Salary: $60k per yearQuota: $600k per year
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A S S U M P T I O N
CASE 16 months to ramp and consistently hit quota
A better onboarding program can decrease ramp time by 30%1
CASE 24 months to ramp andconsistently hit quota
1Organizations 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)
O N BOA R D I N G
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A S S U M P T I O N
CASE 16 months to ramp and consistently hit quota
CASE 24 months to ramp andconstituently hit quota
A better onboarding program can decrease ramp time by 30%1
O N BOA R D I N G
Case2: Ful ly ramped
in 4 months
Case1: St i l l ramp-ing 4 months in
1Organizations 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)
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A S S U M P T I O N
1A 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 2Consistently surpasses monthly sales quota bybringing in $60k per month
Consistently hits $50k per month sales quota
CASE 1
H I R I N G
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A better hire can outperform a peer by 20%1
CASE 2Consistently surpasses monthly sales quota bybringing in $60k per month
Consistently hits $50k per month sales quota
CASE 1
H I R I N G
Case 2: 20% more sales
1A 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.
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A S S U M P T I O N
1Companies 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 can improve an employee’s performance by 20% in a year1
CASE 2Goes from $60k in monthlysales to $72k in monthly sales in year 2
Continues to hit $50k per month sales quota
CASE 1
M A N AG E M E N T & D E V E LO P M E N T
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CASE 2Goes from $60k in monthlysales to $72k in monthly sales in year 2
Continues to hit $50k per month sales quota
CASE 1
M A N AG E M E N T & D E V E LO P M E N T
Case 2: 20% increase in sales in year 2
Great management and development can improve an employee’s performance by 20% in a year1
1Companies that hire managers based on their management skills saw a 48% increase in profitability. (State of the American Manager, Gallup, April 2015)
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A great culture, coupled with good management, can increase employee tenure by one year1
CASE 2Continues to thrive for another year
Starts to look for a new job 20 months in; leaves after 2 years
CASE 1
C U LT U R E & M A N AG E M E N T
136% 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)
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136% 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 2Continues to thrive for another year
Starts to look for a new job 20 months in; leaves after 2 years
CASE 1
C U LT U R E & M A N AG E M E N T
NETREVENUE(1,000s)
Case 2: Employee stays on another fu l l year
P U TT I N G I T A L L T O G E T H E R: 3 -Y E A R OV E RV I E W
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N ETR EV EN U E( 1, 000s )
P U TT I N G I T A L L T O G E T H E R: 3 -Y E A R OV E RV I E W
Before you click on, guess what the difference is in $$…
(I’m serious)
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N ETR EV EN U E( 1, 000s )
P U TT I N G I T A L L T O G E T H E R: 3 -Y E A R OV E RV I E W
$1,300,000
• Making a 20% better hire
• Onboarding her 2 months faster
• Helping him improve 20% year over year
• Increasing her tenure by 1 year
ROI of
$1,300,000 over three years for one
employee
P U T A N O T H E R WAY …
And the numbers really start to add up when you factor them across your entire employee base and make even bigger
improvements than the assumptions we used.
• If you want to read more, you can check out the whole whitepaper here.
• Tweet at me with any questions, comments, or feedback at @MaiaJo_ .
• Start using this concept—and help make it better. Let’s push our industry forward
—Maia
Thanks for taking the
time!
@MaiaJo_