Sales glossary
Sales glossary

Simple definitions for overcomplicated terms.

Definition

What is a Letter of Intent (LOI)? Definition & Meaning

Dec 18, 2025

What is a Letter of Intent (LOI)?

A Letter of Intent (LOI) is a formal document outlining the preliminary terms of an agreement between two or more parties before a final, legally binding contract is signed. In sales and business transactions, it serves as a "good faith" agreement that signals a serious commitment to move forward with a deal.

Think of it as the bridge between a verbal handshake and the final mountain of paperwork. It summarizes the main points of the deal—price, timeline, and key deliverables—so that both sides are on the same page before expensive lawyers get involved.

In Plain English: The "Engagement" Metaphor

If a final contract is a marriage, the Letter of Intent is the engagement.

You aren’t married yet. You haven’t walked down the aisle or signed the marriage license (the final contract). However, you have bought the ring and made a public declaration that you intend to marry this person. Crucially, it usually means you agree to stop "dating" other people (competitors) while you plan the wedding.

It tells everyone: "We are serious about this, so let’s work out the details."

Is an LOI Legally Binding?

This is the most common question we get. The short answer: Mostly no, but partly yes.

Generally, the deal terms inside an LOI (like the purchase price) are non-binding. Either party can usually walk away if they discover something deal-breaking during due diligence.

However, specific clauses within the document are often binding to protect both parties during the negotiation. These typically include:

  • Exclusivity (No-Shop Clause): The seller agrees not to negotiate with other buyers for a set period.

  • Confidentiality (NDA): Both parties agree not to leak sensitive info shared during talks.

  • Good Faith: A promise to negotiate honestly towards a final contract.

LOI vs. MOU vs. Letter of Interest

Sales pros often drown in acronyms. Here is how to tell them apart so you don’t accidentally send the wrong document.

Term

What it stands for

When to use it

LOI

Letter of Intent

Closing stages. You have agreed on the basics and want to lock in the deal structure before the final contract.

MOU

Memorandum of Understanding

Partnerships. Often used for collaborative projects or internal agreements rather than direct sales/acquisitions. Less formal than an LOI.

Letter of Interest

(Self-explanatory)

Opening stages. Used by job seekers or buyers just starting to poke around. It says "I might want this," not "I intend to buy this."

Why It Matters for Modern Sales Teams

In the world of high-velocity outbound sales, momentum is everything. Topo’s AI agents might help you find the lead, qualify the intent, and book the meeting, but the LOI is what helps you keep that momentum.

Getting an LOI signed is a psychological win. It shifts the dynamic from "selling" to "negotiating." It stops your prospect from flirting with competitors and gives you a concrete timeline to close the revenue.

Previous

Lead Velocity Rate

Next

Logo Retention

Related Questions

Is a letter of intent legally binding?

Generally, the primary deal terms (like price) in an LOI are non-binding, meaning you can walk away. However, specific clauses like confidentiality (NDA) and exclusivity (no-shop periods) are usually legally binding to protect both parties during negotiations.

Is a letter of intent legally binding?

Generally, the primary deal terms (like price) in an LOI are non-binding, meaning you can walk away. However, specific clauses like confidentiality (NDA) and exclusivity (no-shop periods) are usually legally binding to protect both parties during negotiations.

What is the difference between an LOI and an MOU?

While often used interchangeably, an LOI (Letter of Intent) is typically used in major transactions like mergers or sales to outline a future contract. An MOU (Memorandum of Understanding) is generally used for partnerships or collaborative agreements and is often seen as less formal.

What is the difference between an LOI and an MOU?

While often used interchangeably, an LOI (Letter of Intent) is typically used in major transactions like mergers or sales to outline a future contract. An MOU (Memorandum of Understanding) is generally used for partnerships or collaborative agreements and is often seen as less formal.

Can you back out of a letter of intent?

Yes, provided the LOI is drafted as non-binding regarding the final deal. If you discover red flags during due diligence, you can usually withdraw without penalty, though you must still honor any binding clauses like confidentiality.

Can you back out of a letter of intent?

Yes, provided the LOI is drafted as non-binding regarding the final deal. If you discover red flags during due diligence, you can usually withdraw without penalty, though you must still honor any binding clauses like confidentiality.

Who drafts the letter of intent?

In a sales context, the buyer usually drafts the LOI to present their offer to the seller. However, in complex B2B deals, the party initiating the formal terms—often the vendor providing the service—may provide a template to speed up the process.

Who drafts the letter of intent?

In a sales context, the buyer usually drafts the LOI to present their offer to the seller. However, in complex B2B deals, the party initiating the formal terms—often the vendor providing the service—may provide a template to speed up the process.