In previous posts, I described how to write an initial sales email and how to write a proposal letter. However, there is one sales email that (when needed) is more important than either of those two emails: the letter of agreement.

I say "when needed" because not every business deal is complex enough to warrant one. A letter of agreement defines the terms and conditions under which your offering will be bought and delivered. It's a contract, but without the legalese.

When You Need It

You use a letter of agreement when a formal contract would be overkill or when the buyer and seller are trying to avoid getting lawyers involved in the sales process.

For example, suppose you're a freelancer web editor and a startup wants to pay you $1,000 to edit their website. Hiring a lawyer to draw up a contract would cost more than you're being paid, so you create a letter of agreement to define the details of the engagement.

Similarly, if a division of a large company wants to subcontract an engineering project to your small firm and get the job done quickly, the GM of that division may prefer a letter of agreement, rather than getting the corporate lawyers to draw up a formal contract, which might take weeks or months.

How to Write It

A letter of agreement should accurately reflect whatever discussions have taken place between the seller and buyer. As far as possible, the letter should be the result of negotiations rather than a vehicle for further negotiation.

Ideally, you'll should discuss these issues with the buyer before you write your proposal letter and close the deal. The goal is to prevent surprises that might "re-open" the deal or, worse, make the buyer feel like you're trying to "pull a fast one."

As I frequently point out in my free weekly newsletter, sales emails should be short and to the point, and this is no exception. Keep it crisp and unambiguous. You want to document the agreement as clearly as possible.

What It Looks Like

A letter of agreement lays out in short sentences what the seller is promising to provide and how the buyer will be paying for it. It also spells out any relevant special circumstances. Here is an example:

Subject: Letter of Agreement (Draft)

  1. This Agreement is between John Smith ("JS"), and Acme Worldwide ("AW").
  2. JS will work with AW on a book tentatively titled "The Decline and Fall of the Digital Empire." The book, when published, will show the CEO of AW and JS as co-authors and joint copyright owners.
  3. JS will structure existing material, conduct interviews, and write two drafts. AW will provide JS with written materials and make its executives available for interviews.
  4. JS will be paid $1 per word, as calculated by the word count of the final draft. Payment will be made in three increments: 1/3 at contract signing, 1/3 at the creation of a first draft, and 1/3 at the completion of the final draft.
  5. The target length is 60,000 words, so the initial payment will therefore be $20,000. Subsequent payments will be adjusted according to the length of the completed book.
  6. Work will begin on February of 2011 and be completed by February of 2012.

Simple enough, eh.  However, if you don't master the letter of agreement, you'll either end up with mixed expectations (and an unhappy customer) or you'll be forced to call the lawyers in to write an "official" contract.

And that can cost you plenty.  When I worked in a Fortune 100 firm, when we tried to form alliances with other companies, our corporate lawyers tried so hard to eliminate risk with detailed contracts, that it took months to get anywhere... at which time it was usually too late!

Why Not Use a Contract?

A letter of agreement is much shorter and clearer than a formal lawyer-written contract. And that's the point. You use the letter of agreement to bypass the participation of lawyers lest they impede the deal.

Here's the problem. Corporate lawyers get no credit if a deal works out but get the blame when a deal goes bad. That's why they say "no" to anything new and lard up contracts with ambiguous legalese.

If you're really worried about risk, of course, then go ahead and get the lawyers involved. Be forewarned, though, that you're taking on another huge risk--that the lawyers will quibble so long that your buyer will jump to a competitor.

Fortunately, many business deals can be finalized with a simple letter of agreement. That's why it needs to be in the toolbox of everyone who sells.