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BATNA stands for Best Alternative to a Negotiated Agreement. In plain words, it is the best thing you can do if this deal falls through. Your plan B, with a name that sounds like a minor Batman villain.
It is easier to see than to define, so here is a made-up example from the concert business. None of these people, rooms or numbers are real.
The setup
Picture a 1,200 cap room in a mid-sized city. "Cap" is short for capacity, so the room holds 1,200 people. The talent buyer wants a band for a Saturday in October. A talent buyer is the person at a venue or festival who hires the acts.
On the other side of the call is the booking agent. A booking agent is the person who sells an artist's live shows and negotiates the fee. The agent works for the artist.
The buyer offers $12,000 as a guarantee. A guarantee is a flat payment the artist gets no matter how many tickets sell. The agent asks for $18,000.
Find each side's plan B
The agent's BATNA: a 900 cap room across town has offered $13,000 for the same night. If this deal dies, the band still has a $13,000 Saturday.
The buyer's BATNA: a regional act that would play that Saturday for $6,000 and probably sell around 700 tickets. A decent night.
What the BATNA tells you
The agent should turn down anything under about $13,000, because walking away pays better. The buyer can do similar math. If the bigger band sells 1,100 tickets and the regional act sells 700, the gap in ticket and bar money shows how high the buyer can go before plan B starts to look better.
So the deal, if there is one, lives between $13,000 and the buyer's ceiling. Say they land at $15,000 plus a bonus if the show sells out. Both sides beat their plan B. Everyone goes home and eats a sandwich.
Three things to take with you
- Know your own BATNA before you pick up the phone. Write it down.
- Make a fair guess at theirs. An agent who knows the buyer's October calendar is empty is holding useful information.
- Improve your BATNA and you improve your deal. The agent who takes one more call to firm up that second offer has done more for the fee than any clever line at the table.
A BATNA is a floor, and you still want to aim higher than the floor. It also lets you be friendly. When you know you will be fine either way, there is no need to bluff. You can be a decent person to deal with, and in a small industry that reputation walks into the next room before you do.
Next time you negotiate anything, a salary, a used car, whose turn it is to do the dishes, ask one question first. If this falls apart, what do I do instead?
