If you’ve attended my sales training or are a frequent reader of this blog, you know I'm a big fan of using savings-to-investment ratio (SIR) to showcase the benefits of expense-reducing capital investments (see last week’s “The Power of Savings-to-Investment”). It’s a simple way to showcase how many dollars of present value you would receive for each dollar invested today.
Comparing the contemplated investment to a mythical ATM machine is a particularly effective way to convey the concept of SIR whether your listener is financially sophisticated or not. Imagine that your magical ATM machine would return $2.50 for every dollar you inserted. How many dollars would you put into that machine? Probably every dollar you had, and perhaps every dollar you could borrow! Well, that machine mimics an SIR of 2.5. Simply put, every dollar invested today generates $2.50 in present value returns over the course of the investment.
In fact, the most compelling and concise financial analysis is one that shows a distinct SIR figure for each year of a multi-year horizon. Showing your prospect how many times their original investment they are likely to receive given a variety of potential holding periods gives them the confidence to say “yes” today.