What do buying a new smartphone and being given a gift card have in common? In both cases you want to extract value as soon as possible. With the gift card you immediately want to go shopping and with the new smartphone you immediately want to port over your contacts and download your favorite apps so you can start using it.
The same thing happens when subscription-based companies sell their offering to a new customer. This article describes the all-important time-to-value (TTV) metric and the various ways it can be measured.
“Value” is the Key Word
It’s not just that “value” is the most important word in the name of the metric but it’s especially important that customer-centric value is the focus. In other words, you and your company might get a lot of value from the revenue you can recognize when an order is booked and a new customer license is activated. But that’s not the time to declare ultimate victory and not the focus of this article. The reason should become crystal clear as you read further.
It’s amazing to me how many companies discover that their churn rate is too high (see my favorite quote about churn and leaky boats) and, after investigation, they discover clear signs that those departed customers were sending strong signals before they dropped off. In many cases, the customers never, or barely, used the product – certainly not enough to justify the cost. They’re not going to keep paying for long. Duh!
Measuring the TTV metric is not complicated. The TTV clock starts ticking when the customer completes their order transaction:
- Providing credit card information and clicking the “submit” button for self-service subscription offerings
- Sending you a signed purchase order (or equivalent) to buy your product
In a perfect world for the customer, they would immediately start receiving value. But even mobile apps must be downloaded, installed and configured. And if we go to the other end of the spectrum, high-dollar enterprise software typically involves much more effort before value is received.
Incorporating Multiple TTV Measurements
It is possible that you should track two or more TTV metrics. Below are a couple of examples:
- Time to Initial Value: When does your customer experience at least some value from your product? This means they’ve completed an initial setup and are starting to use it. That’s a good place to start, and you want this to happen as quickly as possible (back to my smartphone and gift card examples).
- Time to Critical Value: When does your customer experience enough value to exceed their on-going subscription cost? This also likely equates to the return on investment (ROI) you describe in your marketing material or sales pitch.
For internal conversations within a startup, I often translate the above metrics to “TTV-1” and “TTV-2”. You might also have a TTV-3. What is most important is defining the progressive milestones of value delivery, ultimately reaching some pinnacle of ROI for the customer and their associated extreme delight.
Reaching critical value is important because you can expect a very low churn rate from customers that reach this point, unless some new competitor has a better value proposition. Consequently, you should also conclude that reaching initial value is only a step along the path to get a customer where you ultimately need them to be.
The actions and priorities for your company are very different for each of the above TTV metrics:
- Initial Value: At the moment an order is completed, you want to have systems and processes that allow the product to quickly get installed and configured for first use. If training or additional services are required, these should also receive big focus for efficiency and effectiveness optimization.
- Critical Value: The word “critical” means different things for different offerings. It could denote amount of use (ie – daily/monthly active users), repeat use, use of highest value functionality, integration with other critical business systems, or many other things. How can you influence these actions and activities to help achieve this TTV metric as quickly as possible?
You’ll want to adopt a continuous improvement attitude with regards to the above TTV optimizations. In the early days it will be easier to make big improvements, but in later phases of your company’s evolution you’ll have to work hard to improve in much smaller increments.
Systems
In an article I published titled “You Never Know Which Operational Metrics You’ll Need – So Instrument Everything” I recommended instrumenting your mobile or SaaS app to track just about every customer action possible. Such actions can be tracked and analyzed in an events-oriented online system. And once you have that information, you can combine it with timestamp information related to order completion, training and professional services milestones, first product use, etc. Then it’s simply a matter of mathematics to derive your various TTV metrics and associated graphing to see performance and trending over time.
This area is also ripe for further enhancement with artificial intelligence or at least sophisticated data science. If you feed such systems enough information about your customers’ product usage and associated timestamps, you might be amazed at the information you get back to help further refine the various TTV definitions. For example, customers with only a 1.2X ROI might churn significantly higher than those that reach a 1.6X ROI. In this case, it seems like your time-to-critical-value (TTV-2) might need to be set based on metrics that lead to 1.6X ROI. I’m just making up numbers to demonstrate the concept.
Why Bother?
The downside implications of ignoring time-to-value are multi-fold. In the best case, your customers that come up for renewal will ask for credits equal to the first months they paid for your software but weren’t able to use it because of _____ (fill in the various inhibitors that prevented them from reaching time-to-initial-value). In the worst case, your customers will churn before you’re able to extract enough lifetime value (LTV) to exceed your customer acquisition cost (CAC). And that’s how you quickly go out of business.
Read my related article titled “Visualizing the Interactions Between CAC, Churn and LTV“
Summary
Spend some time with your key team members, thinking about the importance of TTV to your company and how many versions of it you should monitor. Put systems and tracking mechanisms in place to evaluate and trend over time. Then decide who on your team is responsible for optimizing TTV for the benefit of the company. If they’re already on a bonus plan of some sort (see related article titled “MBOs Demystified“), consider incorporating TTV performance and associated improvement into the bonus plan’s targets, until you’ve reached an desirable outcome.