What is a Best Alternative to Negotiated Agreement (BATNA)?

The Best Alternative to Negotiated Agreement, or BATNA, is the most advantageous alternative a negotiating party can take if negotiations fail. Generally, negotiating parties will default to taking the actions outlined in their respective BATNAs when negotiations break down.

For example, say Company A is selling a product to Company B. After conducting market research, company A determines they will not accept less than $5000 for the product they are selling and offers to sell it to Company B for $7000. Meanwhile, however, Company B has found a comparable product for sale for only $6000. 

When the companies begin negotiating the price, Company B would immediately attempt to negotiate Company A’s price down to lower than $6000. This is because Company B’s BATNA would be to purchase the comparable $6000 product.

According to basic negotiation theory, a BATNA serves as a benchmark against which negotiators should measure the deals they’re considering during negotiation. If the consequences of accepting an agreement during a negotiation would be worse than your BATNA, then you should not accept that agreement.

In the example above, both negotiating companies could still reach an agreement. This is because there is a Zone of Possible Agreement (ZOPA) overlap between Company A’s price range and what Company B can pay to secure a more favorable deal than their BATNA. Company A would either agree to sell their product for between 5000 and 5,999 dollars, or negotiations would fail and Company B would buy the $6000 product from another vendor.

Some other examples of BATNA:

• If a job seeker is negotiating a job offer from a new company and is not receiving an acceptable salary offer, their BATNA might be to stay at their current company.

• If an IT team is procuring services from a contractor and is not coming to an agreement on pricing, their BATNA might be to have an in-house employee take on the work.

Why is preparing a BATNA for negotiations important?

In simple terms: the stronger your BATNA, the more leverage you have in a negotiation. The less disadvantageous your BATNA, the more prepared you are to walk away from a negotiation without agreement.

Understanding and preparing your BATNA allows you to set unmovable terms for the negotiation to follow. For example, because Company B already found the product they were looking for on sale for $6000, they were able to essentially cap the price negotiation at $5,999 right from the beginning.

Entering into a negotiation without a BATNA will put you at a significant disadvantage. If Company B had not gone to the trouble of finding an alternative $6,000 product before they negotiated with Company A, then Company A would have opened negotiations with the $7,000 offer.

How can you prepare a BATNA?

The nature of your BATNA and the research required to find it will differ significantly based on the negotiation in question. Unfortunately, a BATNA is rarely as straightforward as a simple alternative price.

For example, maybe during their research, Company B discovered that the alternative $6,000 product they found doesn’t have all the features Company A’s product does. This would complicate and weaken their BATNA. Depending on how badly Company B needs the features Company A’s product offers, they may have to consider paying more than $6000 to get them.

Harvard Law School offers a helpful, generalized four-step process for finding and preparing a BATNA in their report on BATNA Basics: Boost Your Power at the Bargaining Table:

1. List all the alternatives to the current negotiation. What are all your options if you can’t agree?

2. Evaluate the consequences of each of these alternatives contextually. What are the pros and cons of each alternative?

3. Determine the alternative that provides the highest value to you. Do this by carefully considering what you can and cannot afford to do without, then choose the alternative that allows you to get as much of what you need as possible.

4. After you’ve determined your BATNA, use it to calculate the lowest-valued deal you’re prepared to accept. Remember, this deal must still be better than your BATNA.

Where do I include my BATNA in a contract?

Under most circumstances, you shouldn’t reveal your BATNA too early in the course of negotiation - no matter how strong it is. Do not include an explanation of your BATNA in the negotiation documents you share with the other participants. Instead, keep it private and play it as a bargaining chip when you need it.

Simply put, a BATNA makes it easy to know when to hold firm in a negotiation, when to fold and accept an agreement, when to walk away, and when to run. A rock-solid BATNA can fuel negotiations that lead to better outcomes for your business.