The biggest mistake people make with the tankless H.W. heaters is setting the temperature. When the typical person uses a tank water heater, they set the temp fairly high, usually about 130 - 150. When that person takes a shower, they temper that hot water with cold water to make a shower or bath of around 95-100 degrees or so. This allows one to bathe using less water out of the hot water tank, and thus allowing the hot water to last longer during the bathing period.
The proper way to use a tankless water heater however is totally opposite. Since a tankless water heater heats the water as it travels through, it won't ever "run out" of hot water. Because of this, the best way for both maximum efficiency, and proper temperature balance is to set the tankless WH to the exact temp you desire to take your bath or shower at, and then turn on ONLY the hot valve when you bathe. If this method is used, the best efficiency and comfort is attained.
If the "tanked" method of setting the temperature is used, one will find the tankless water heater "cycling" like it is on a thermostat. This can especially be a problem with the automatic single-handle faucets frequently used in newer homes. The problem stems from the amount of flow needed to trigger the water heater to come on. If the hot water is tempered with cold water, then there will not be enough flow through the heater to turn it on. The result is that the user, or the automatic faucet will open up the hot side until the flow is high enough to turn on the heater. After this happens though, the water gets too hot and the user, or the faucet closes the hot valve, then the flow drops off through the heater, and it shuts off...the cycle continues as the bather gets more annoyed and angry, and eventually makes an angry phone call to the plumber to remove the infernal appliance because it doesn't work properly!
The other side of this is that when hot water is tempered down, not only is the flow of hot water reduced, but the hot water is cooled down. Okay, so why are you going to pay to heat the water, then cool it back down?!?!?! With the precise temperature regulation that most tankless units have, you are best just setting the heater's temp to what you need for the usage, and not tempering, thus saving the energy needed to heat it to the hotter temp. Most tankless units have a remote thermostat so that the user can adjust the temp to the needed amount depending on what task is being performed. For example, one can turn the WH up to 140 degrees to run the dishwasher with.