Letter of intent (LOI)
In short
A letter of intent (LOI) is a document in which a prospective buyer states its intention to buy a product or service on outlined terms. It is usually signed before a full contract and shows serious interest.
In B2B sales, an LOI often covers scope, expected pricing, timeline, and next steps. Whether it is binding depends on its wording and local law, so teams should have legal counsel review it. This is general information, not legal advice.
What a letter of intent usually contains
- Parties: Who the buyer and seller are.
- Scope: The products or services, and the expected volume.
- Commercial terms: Pricing, contract length, and payment approach.
- Timeline: Target dates for contract signature and start.
- Conditions: Items to be met first, such as security review or budget approval.
- Binding clauses: Often confidentiality or exclusivity; the rest is typically non-binding.
Why sales teams use an LOI
- Signals commitment: Moves a deal from "interested" to "intending to buy".
- Helps forecasting: A signed LOI can support moving a deal to a later stage, if your process defines it that way.
- Gets the buyer to align internally: Writing terms forces the buyer to confirm budget and approvers.
- Reserves capacity: Useful when you need to plan delivery or inventory.
LOI vs. contract
A contract is a binding agreement with full terms. An LOI is a preliminary statement and is mostly non-binding. A signed LOI does not guarantee revenue, so treat it as a strong signal, not a closed deal.
How to use one well
Make it specific
Include price range, scope, and dates, so the next document does not reopen basic questions.
Mark what is binding
State plainly which clauses are binding and which are not, to avoid disputes.
Set a next step
Include a date for contract drafts and a named owner on each side.
Common mistakes
- Counting it as closed-won: Many LOIs never become contracts.
- Vague wording: Unclear terms invite later disagreement.
- Skipping legal review: Wording affects whether obligations apply.
Letter of intent FAQs
What is a letter of intent?
A letter of intent is a document in which a prospective buyer states its intention to purchase on outlined terms. It is usually signed before the full contract and shows serious interest, but it is typically not fully binding.
Is a letter of intent legally binding?
It depends on the wording and the applicable law. Most LOIs are non-binding about the purchase itself, though clauses such as confidentiality or exclusivity may be binding. Have a lawyer review it. This is general information, not legal advice.
What is the difference between a letter of intent and a contract?
A contract is a binding agreement with complete terms and obligations. A letter of intent is a preliminary document that records intended terms and next steps. The LOI shows commitment but usually does not guarantee the sale.
When should a sales team ask for a letter of intent?
Ask when a deal is long, complex, or needs internal approvals, and the buyer is willing but the contract will take time. It helps confirm budget, scope, and timeline, and gives both sides a shared plan.
