Many members have posted issues with LOIs.
So I wanted to go over a few details regarding LOIs in this post.
Reasons for LOI
There are two main reasons for requesting a LOI.
- To collect all the information necessary from which you can accurately get a quote from any supplier.
- To see if the buyer can be bothered to write his own requirements.
The LOI must be on the buyer’s own letterhead. Ask him to write it on his own letterhead which contains his logo, company name and address.
Some new startups or companies in third world countries don’t use logo letterheads. They just write their name and address at the top. So if they say this to you, then you can accept that they write down their company details at the top to simulate a letterhead.
At the same time, explain the importance of having a letterhead and lecture them on it. Let them know you can get a professional letterhead made for them for $100 which they can use for all business transactions.
If you don’t know anyone who will make it for you, let me know and I’ll sort it out.
Time Waster Check
When you ask for a LOI, don’t just hand them the template I have given you in the members area. That template is only to be used when they don’t know what a LOI is or what information should go on there.
Remember, you want him to make the effort and write it by himself rather than take the easy route. You want to see if he will use enough energy to write down his own requirements.
If he can’t be bothered to write down what he himself wants, then you can’t expect him to draw up the contract or make payment. I would classify this type of buyer as a time-waster. He will probably get cold-feet when it comes time to making payment, thus wasting your time and effort if you worked for him.
Maximum Target Price
On my template, I have written down “Maximum Price”. This should not be on there. This is something you need to get from the buyer but you cannot leave it on the LOI. You need to have it written down elsewhere or contain it in your head.
The reason why you shouldn’t have his maximum price on the letterhead is because some suppliers will ask you for the buyer’s LOI.
If you hand them this LOI with the maximum price written on there, the supplier may change his lower price to the maximum price to gain max benefit.
Instead, find out the supplier’s lowest price and calculate the difference between that price and the buyer’s maximum target price.
If the difference is large, then knock a little of the buyer’s max price to make the buyer happy and quote him that price. This means, everything in between is your commission.
To Blur or Not to Blur? That is the Question.
When you receive a LOI with the buyer’s company name and address and contact details on there, you may have to blur that information before you hand it to potential suppliers.
If you are contacting suppliers for the first time and they ask you for a LOI before they can quote you, have a copy of that LOI ready with the sensitive data blurred out.
So as soon as they ask you for a LOI, just drag that LOI into the chat window immediately so you can get a quote without any additional effort.
Since it’s a brand new supplier, you don’t want to expose your buyer to them just in case they decide to steal your customer.
What if it’s a supplier who you have been talking to for some time?
If you have been talking back and forth for some time with a supplier, but you haven’t signed a fee agreement with him yet, then he also deserves a blurred copy of the LOI.
When you have concluded a fee agreement with him and received a signed copy, then you can immediately send him the non-blurred LOI.
From that point onward, you can continue to send him non-blurred LOIs for the same product from any new buyer.
Having said all this, if you have built up a good relationship with the supplier and you trust him, then there is no need to blur the LOI even if you still haven’t signed a fee agreement with him yet. But you should get that done asap (since you will be working with him often).
Added Advantage
After the buyer has handed you the LOI and it has unrealistic demands on there, then you can tell him straight, “this is impossible” or “I have spoken to hundreds of suppliers across the world and not a single one accepts.…”
Once you say these words, he may feel more pressured to change his demands since he took the effort of writing that LOI. He doesn’t want that to go to waste, and so he may be willing to compromise on his demands.
Getting a LOI from a buyer is like squeezing water from a stone
After reading many of your posts, I see a common complaint regarding the frustration of trying to get a LOI out of a buyer.
When you ask for it, all you hear is crickets and you may see the occasional tumbleweed drift by.
There are two scenarios that I can think off.
First, no matter what you do, no matter how much you ask for that LOI, you will not get it because the buyer is a real, bonafide, lazy, time-waster. If he doesn’t hand you the LOI, you should be happy that he has saved you hours of time (contacting suppliers). Be glad to get rid of him. It’s not your fault and you didn’t do anything wrong. You simply came across a time-waster. Learn to remove him from your memory and swiftly move on to the next buyer, without being frustrated. And that is the key – don’t become frustrated when he doesn’t respond.
The second scenario why a buyer may not instantly respond to your request for a LOI is because of the way you came across to him.
Making deals is all about human interaction. Many buyers play it by feel. If they sniff a whiff of bullshit, they’re outta there. If they doubt you in the slightest, they’re outta there. If they don’t feel comfortable with you because of the words you have chosen to address them with, they’re outta there.
Although you should be professional at all times, that doesn’t mean you should speak to them like a robot or in a stern way.
On my initial contact, I would keep it formal but also light-hearted and friendly.
When they respond, I like to talk to buyers in the same way they come across to me. If they speak slang or poor English, I grade my language to match (so they understand better) while still remaining professional in what I say.
If you are business all the time and they are more interested in finding out about you as a person, then that is one way to break a new relationship. Engage with them. Talk with them. Be friendly. If they want to talk about your age and your country, oblige them. When the friendly banter has finished, you can casually bring the buyer’s requirements into the conversation.
Golden Rule: Never ask for a LOI straight out of the gate!
Engage your buyer first and establish a bit of rapport. When the fire is kindled, and you have spoken about his requirement, then just before you leave, you should ask him for the LOI at that point – right at the end!
During your conversation about the commodity which he wants, you want to impress upon him how you will find him the best deal at the lowest price and at the most favourable terms. Keep reminding him in different ways.
If you do this, you are subliminally creating a sales pitch which is convincing him that you are on his side and you have his best interest at heart.
You’re not asking him for any money either.
So at the end of the conversation, when you ask for that LOI, you should have him eating out of your hands. Your chances of getting water out of that stone will have risen drastically. He will feel obliged to make one for you soon.
So next time you talk to a buyer, try this tactic.
If it still doesn’t work, it may be that he is from the first scenario I have explained above (a genuine time-waster).
Your Decision
Having said all of this, the final decision rests with you.
Strictly speaking, you don’t need the LOI to make a deal. You can just as well complete a deal without the LOI. But having a LOI will keep you safe and avoid you wasting countless hours (unless suppliers ask for it).
So if you feel that the buyer is genuine and he wont waste your time, or maybe you have received the LOI but with the letterhead missing, or some other information missing, ask yourself, “what do I think of this buyer“. If your answer is positive, then you may decide to proceed with what he has given you and not push him for the rest.
If you are not convinced with what he has given you, then by all means, ask him to complete the rest of the LOI with specific pieces of information and then send that to you.
If they still don’t respond, push them a couple of times (just in case they were genuinely busy) and after that, dump them and move on. There are plenty more fish in the sea.
I hope this article has helped clear up some LOI issues. I may add to this article from time to time depending on the questions that arise.
Good Luck,
Amin