For formal letters, always use the honorific and surname in addition to the first name. If you are unsure of the gender of the recipient, omit the honorific, and use the first name and surname: For example, Dear Pat Smith. If the addressee has a doctorate, (PhD, MD, EdD) use Dr. as the honorific instead of Ms. or Mr: for example, Dear Dr. Pat Smith.
When addressing clergy members, use the title before the person's surname: for example, Dear Father Smith or Dear Archbishop Smith. Diplomats are addressed by their titles (Ambassador or Minister) as well. Also, their honorifics are Mr. or Madam. In addition, members of academia are addressed by their titles: for example, Dear Professor Smith or Dear Dean Smith.
When writing a formal business letter, it is best to do some research into the company or organization to which you're writing. Find out as much as possible about the names and titles you'll be addressing. That simple gesture indicates your knowledge of the company or organization and makes you seem like a competent individual with whom they'd be more willing to form a working relationship with. Most company websites make it easy to discover the necessary information.
If you don't know the person's name, use the person's title. Titles include Professor, Senator, Dean, Sister, Rabbi, Governor, Captain, Director of Human Resources, and Judge. If you don't know the title, or if the person doesn't have one, you can use the job title: for example, Dear Recruiter. This isn't the best method, of course, but at least it signals that you know approximately whom the best audience would be. Again, it's about knowing your audience and the organization in relation to your letter's purpose. If you're looking for a job, you'd want to address your letter to a recruiter, human resources, or the company's hiring committee and not the CEO. If you're not aware of the the person's job title, then Dear Sir or Madam works as a last resort, however, this isn't much better than "To whom it may concern."
Remember: the more you know about your audience, the better your salutation will be and probably the body of your letter as well.
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