Letter of intent 

A letter of intent is a powerful supplementary document to help gauge customers’ actual interest in your offering. It typically includes a set of terms and specifications of your solution, as well as a provisional price that needs to be signed by potential customers, underlying the intent to buy the offering when it is available. While it is generally unenforceable it helps you in two ways: it requires you to be very clear and specific about what you are going to offer, and it makes the offering more tangible for the customer, inviting a more in-depth consideration of the value of your solution.

Step-by-Step Guide:

A Letter of Intent (LOI) is a formal document expressing the preliminary commitment between two parties before finalizing a deal or agreement. It outlines key terms and sets the foundation for further negotiations.

Step 1: Start with a Proper Heading

• Include the date, your name, and the recipient’s name and address at the top of the letter.

• Use a formal greeting, such as "Dear [Recipient's Name]."

Step 2: State the Purpose

• Begin the letter by clearly stating that the document is a Letter of Intent.

• Mention the purpose of the LOI—whether it's for a business partnership, acquisition, or employment offer.

Step 3: Describe the Proposed Agreement

• Provide a detailed description of the proposed agreement or transaction.

• Highlight key terms such as the scope of the deal, pricing, responsibilities, or other relevant points.

• Specify whether the terms are binding or non-binding.

Step 4: Clarify the Terms and Conditions

• Clearly outline any conditions that must be met for the agreement to be finalized.

• Include contingencies like due diligence, approval by management, or financing arrangements.

Step 5: Include Timelines

• Specify important dates, such as deadlines for finalizing negotiations or completing due diligence.

• Indicate when the agreement or deal is expected to be completed.

Step 6: Discuss Confidentiality and Exclusivity

• If applicable, add a clause on confidentiality, ensuring both parties keep sensitive information private.

• Include an exclusivity clause if the parties agree to negotiate solely with each other during a set period.

Step 7: Outline Next Steps

• Mention any steps the parties need to take after the LOI is signed, such as further negotiations, documentation, or legal processes.

Step 8: End with a Professional Closing

• Restate your commitment to the terms and encourage further discussion.

• Use a formal closing such as "Sincerely," followed by your signature and printed name.

Optional: Legal Disclaimer

• If applicable, add a disclaimer stating that the LOI is not a legally binding document (unless specific terms are binding).

An LOI serves as a framework for future agreements, providing both parties with a clear understanding of the basic terms before moving forward.

Example:

Tesla - Model 3 Pre-orders:

Before the release of the Tesla Model 3, Tesla utilized a form of LOI in the shape of pre-order deposits. Customers placed a deposit to secure their spot for the upcoming car, essentially showing their commitment to purchasing when the car became available. While the deposit was refundable (hence not legally binding), it served two critical purposes:

1. Testing the market's interest: The deposit system demonstrated real customer demand for the vehicle.

2. Clarity on the offering: Tesla outlined key features, specifications, and provisional pricing for the car, allowing customers to make an informed decision on their intent to purchase.

This method worked similarly to an LOI by giving Tesla clear feedback about the market's willingness to buy and providing customers with tangible information on the product before its release.

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For more information on the topic, please see the source below:

Jansen, S. A. (2016). Mergers & acquisitions: Unternehmensakquisitionen und -kooperationen. Eine strategische, organisatorische und kapitalmarkttheoretische Einführung (6th ed.). Springer Gabler Wiesbaden. https://doi.org/10.1007/978-3-8349-4772-7

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#Features & requirements #Benefits & value # Willingness-to-pay