The literature is full of articles that discuss the long-term value (“LTV”) of a customer. An LTV calculation takes into account both the initial revenue and the long-term revenue potential of a customer and compares it to the cost of securing a customer and supporting them. There are, of course, several subjective factors besides the obvious economics that need to be considered.
The same LTV thought process should be made by both the candidate and the potential employer during the recruiting process. For the candidate, the focus is usually on the initial compensation offer, title, responsibilities, and perhaps, equity participation. Obviously, these are important considerations, especially if the candidate is unemployed. However, the more important issues that candidates should focus on is their future with the company. Some of the areas that should be considered include the candidate's logical career path, their comfort level with the company’s environment, and the realistic prospects for the company’s long-term growth and sustainability.
The candidate must keep in mind that time is not recoupable; every day spent with one organization is a day that cannot be spent with another. Further, the “street-value” for many individuals begins to diminish over time. There is ample evidence of this when one considers the number of middle-age, mid-level managers who, despite excellent past performance, have difficulty securing new positions – which are often given to younger, “less-expensive” individuals. As another example, a company may be quite interested in hiring a sales rep from a competitor. Although the person may be well-qualified, the company’s major interest may be with the candidate’s customer contacts and reputation. Over time, the value of those contacts, as they become stale, will certainly diminish.
The company should also consider the LTV of the candidate. From the opposite perspective, the cost to replace an employee needs to be carefully considered during the recruiting process. A poster-child example of the wrong approach is the cellular industry that spends large sums to attract new customers but does very little to retain them. With employee tenure averaging about 4.2 years for older workers, and 2.8 years for younger workers, replacement costs – or how to avoid them – should receive significant attention during the recruiting process.
Many people will balk at the notion that a person should think about their future with a company five years in the future. Average tenure, although fairly constant over the past several decades, suggests that a person will not be with the same company in five years. However, even if a person projects that they will leave within that time period, the LTV exercise is still worthwhile. By answering the LTV question, a person can determine if the position they are applying for is on the correct trajectory to help them reach their longer-term goals.