In the age of big data and consumer analytics, it’s now easier than ever for companies to calculate the monetary value of an individual customer relationship. Most of the time, the equation looks something like this: The number of purchases the customer makes, minus the marketing and other costs required to gain the customer, divided by the number of years the customer will remain loyal to the company will equal the customer’s lifetime value (LTV). This calculation has led to revolutionary breakthroughs in customer relationship management and revenue management—once companies possess this number, they’re better able to target their efforts and avoid wasting money on non-promising relationships.

So why not apply a similar equation to employee relationships as well? CFOs are using varying versions of the same calculation to help their companies get the most out of their payroll budgets. If a manager can estimate the yearly value an employee adds to team productivity, the rest is easy. That number, minus the cost of salary and training, divided by years of service will provide the employee’s estimated “lifetime” value, or the lifetime value of the relationship.

Don’t Take the Equation Too Far

Of course if you’re a CFO and this number sounds too easy and simple to be true, then… that’s why you’re a CFO. Some equations and relationships are far too complex to be easily broken down in this way, and trying to force each employee contract into this formula can eventually produce misleading information and cause more harm than good. But with some applied intuition and some respect for the complex variables that inform this system, the equation can serve as a general guideline. Its value will generate the most meaning on two occasions: During the employee evaluation cycle and during the hiring process.

The true challenge lies in the first variable, the value an employee adds to “team productivity”. This number will be more accessible for sales pros and manufacturing employees than providers who offer less tangible and measurable benefits, like admins, marketing staff, and product development innovators.

All the same, any effort to apply standard calculations to employee value can help control payroll budgets, which represents a step in the right direction. If you’re ready to take this step and you might benefit from the guidance of an experienced financial staffing expert, contact Cordia today. If you are looking for executive recruiters in Arlington VA, contact us today.