Updated: Apr 23, 2020
In the world of Customer Success, you often hear folks talk about value. In particular, the term lifetime value is thrown around. While lifetime value (LTV) is an important metric for subscription offerings, it keeps you focused on the future. I’m a big fan of what happens at the beginning of customer journeys, though, because those first 90 days make or break long-term relationships. That’s where the metric time to first value (TTFV) comes in.
Since we are talking value, let’s get clear on meanings:
Value: the importance, worth, or usefulness of something
Lifetime value (LTV): a prediction of the net profit attributed to the entire future relationship with a customer
Time to first value (TTFV): the moment when customers initially realize value of your product
In the world of software as a service (SaaS) you’re never far away from losing a customer. Value is most relevant during the crucial onboarding period when customers have high expectations of your product and you have limited time to meet their expectations. The rush is on to engage customers before they start looking elsewhere.
The trough of disillusionment.
In the days when software was sold as a perpetual license, first value wasn’t compelling for B2B software companies, and it took a long time for customers to see benefits from purchases. After a long sales cycle and after paying a large lump sum, new customers were willing to wade through the “trough of disillusionment” on the way to their desired outcomes. This trough, which comes from Gartner analysis about new technologies, describes a hype cycle. The cycle starts with high expectations and is quickly followed by deflated interest as the new technology fails to deliver. Eventually, the innovation meets the needs of the users in the plateau of productivity. See the Gartner image below.
You see a similar cycle when you apply the trough of disillusionment to the B2B customer journey. Customers go through high expectations during the sales cycle and then hit a trough of disillusionment when there’s no onboarding, when products take a long time to implement, and when they are hard to use. According to Baremetrics, customers willing to stick around long enough might reach the plateau of productivity and eventually realize value. Unfortunately, you don’t want to rely on this risky approach. See the Baremetrics figure below.
Why first value is important.
In a subscription economy, customers don’t tolerate the trough of disillusionment. You can’t afford the delays, frustrations, and long implementations that were acceptable with perpetual licenses. Since customers invest less initial time and money up front, you don’t have their full commitment until you prove value in your product.
Just like you have only one chance to make a first impression, you have only one chance to guide customers to first value. In the article Should CS Care about Fastest Time-to-Value?, Shreesha Ramdas, SVP & GM of Strikedeck at Medallia shares, “The human mind is designed to make conclusions and frame perceptions about a product in a time sensitive manner. Such is the challenge SaaS companies face on a regular basis, to convey product value to customers, before they think of switching to alternative products. The window they have to make this decision is usually quite small, and that is the only time companies have to generate the TTFV."
When you guide your customers to first value, your company benefits by keeping the doors open. Brian Gillette, Managing Director at 10XCEO shared with me three benefits: reduced churn, increased revenue, and improved revenue recognition. First, rapidly demonstrating value to stakeholders and users in the account gets them to stick around for the long term. This increase in renewing accounts, compounded over the long run, adds up to a lot more revenue for you. Second, when users quickly adopt and use your product, their usage increases at a faster pace. They promptly purchase additional modules and seats to roll out across their organization, which is especially valuable when your company has a “land and expand” sales approach. Third, quick value improves revenue recognition. Some companies don't move new sales bookings to recognized revenue until customers achieve initial milestones. In this case, the faster you get to a first deliverable, the better it is for your books.
Rick Nucci, co-founder and CEO of Guru, has seen many startups fold from the inability to quickly prove their value to customers. In an interview with First Round Review, Nucci shares, “One thing I kept hearing from founders of legacy products that had shuttered was some variant of, ‘We couldn’t justify our existence, so people stopped buying.' The ability to demonstrate value to customers can determine whether a startup generates a wave of sustainable success — or fades into irrelevance with the next tide.”
The article The Most Important SaaS Metric Nobody Talks About: Time-to-Value (TTV), emphasizes you to, "Find religion about optimizing TtV! An optimized TtV has positive ramifications throughout the organization ranging from freeing up support engineers to work on product to enabling a tightening of sales and marketing spend up and down the funnel.”
Ultimately, when you decrease time to first value, a metric many companies don’t track, all those metrics you do care about improve. Product usage, MRR, ARR, renewal rates, NPS, and of course lifetime value all benefit from quickly driving customers to benefits in your products. Read my article, Seven Ways to Decrease Time to First Value, where you learn how to determine first value and how to decrease the time it takes customers to reach first value.