Why Best Alternative to a Negotiated Agreement (BATNA) Matters for Sales, According to Dropbox's Head of Customer Solutions

When I first sat down with David Stafford, Dropbox's Head of Customer Solutions, to discuss BATNA, he admitted what I'd also been thinking.

"I'm going to be honest — I'm familiar with BATNA from business school and from a textbook point of view. But I never knew it as BATNA. So, this morning, I had to Google it."

I'd also spent the morning reading up on BATNA, so I could relate. Beyond it sounding awfully similar to Batman, I still wasn't too sure what it was.

Stafford continues, "But once I understood what it meant, I went from feeling like we were talking about something I knew nothing about … to feeling like we're talking about something I truly do everyday, both professionally and personally."

Here, we'll discuss why BATNA is an invaluable part of the selling process. Plus, how you can leverage BATNA's key negotiation tactics to ensure your business and your customers are both benefitting from a deal.

But first — what does BATNA stand for, anyway?

What does BATNA stand for?

BATNA stands for Best Alternative to a Negotiated Agreement.

Essentially, it's the best offer you're willing to accept when negotiating if the initial proposal fails to draw agreement from both parties.

As Stafford puts it, "BATNA is your best and final offer. When you're negotiating, you need to ask yourself, 'What are the concessions I'm willing to make? And what are the concessions I'm willing to give in order to get to that ultimate negotiated agreement?' That's how you'll construct your BATNA."

To determine what your BATNA is, there are five steps you'll need to follow. These include:

Step 1: Determine your best result and goal.

Step 2: List alternatives if you can’t achieve that goal. What are acceptable replacements for any elements of the best result?

Step 3: Evaluate your alternatives in value (financial and overall value). Here you want to judge each alternative option as fairly as possible.

Step 4. Choose your best alternative. What is the next acceptable option?

Step 5. Decide the lowest terms you’re willing to accept.

To fully understand how this process works, let's explore a few examples — both professional ones, and personal ones.

BATNA Example

Let's say you work for a business that sells software. In the first negotiating phase, you'll send along a standard contract that outlines the full cost of your software to your prospect. In the contract, you're already aware of what your negotiables and non-negotiables are.

Step 1: Determine your best result and goal.

Right now, your best result is getting the customer to pay full-price, right off the bat, for your software.

Step 2: List alternatives if you can't achieve that goal. What are acceptable replacements for any elements of the best result?

Here, you'll want to list all the value add-ons you can offer if the customer doesn't accept your initial offer. These might include:

• 10% discount on the cost of the software.
• Free training & educational materials provided by your customer support team.
• Add-on services or additional product features not typically included in the package.

Step 3: Evaluate your alternatives in value.

Figure out how much your alternatives will cost your business. This isn't always straightforward: For instance, what's the impact on productivity or overhead costs if you're requiring your customer support team to help with implementation and training? If your customer support team is overloaded already, could this ultimately hurt your bottom line?

Once you know the value of each alternative, you can begin to decipher which one is the best case scenario for your business.

Step 4. Choose your best alternative. What is the next acceptable option?

Here, perhaps you decide you'd be happiest to offer the 10% discount because it is the least expensive option for your business. That's your BATNA #1.

If they don't accept your BATNA #1, you're also willing to offer a specific product feature add-on for free. That's your BATNA #2.

If they don't accept either offer, you can mention the employee training opportunity, but that's the last resort — or BATNA #3.

Step 5. Decide the lowest terms you're willing to accept.

At some point, you need to be able to walk away. If a 15% discount on the software will end up losing money for your business, then it's helpful to know anything beyond a 10% discount is simply not worth the deal.

Why is BATNA important?

1. BATNA Can Help Maximize Value for Your Business and Your Customer

There are some key benefits to leveraging BATNA in negotiations.

For one, you don't want to put all your concessions forward in your first offer right off the bat, because you'll need some leverage if your client doesn't accept your first offer.

These concessions don't always need to be monetary. In one example Stafford shared, a recent Dropbox customer requested a training to help their employees understand how to use the product so they didn't need to hire a third-party company for the training. You'll need to determine with your team the appropriate additional value you can offer beyond a standard agreement.

When I asked Stafford about the biggest benefits to leveraging BATNA in negotiations, he told me, "Number one is for you to know that you've maximized the value around whatever you're selling. It helps you feel confident that you've done the best you can and contributed the most value possible for your business."

"On the flip side," He continues, "You want to make sure you're demonstrating maximum value to the customer. It's not enough if a customer walks away feeling like they lost, and you won. That's not the goal. You want to feel like the biggest concession I made was what was most important to my buyer. I did the best I could for our side of the equation, and we reached that perfect equilibrium."

This is a fair point. BATNA helps ensure you and your customer both leave a negotiation feeling satisfied. If a customer feels taken advantage of during a negotiation, even if they agree to the end-terms, it could ultimately backfire on your business in the long run.

As Stafford puts it, "If you just try to win at all costs, your customer will come back harder and stronger in twelve months or whenever their contract ends. They'll be trying to make it right next time, because they don't feel they've gotten the value they deserve."

2. BATNA Can Help You Know When to Walk Away

Having a BATNA can also help you identify when you need to end negotiations. You need to understand what's the minimum you're willing to accept before you end up losing value. For instance, how much of a discount on a product can you provide before it ends up cutting into your margins, and you're no longer making a profit off the deal?

Alternatively, if your business goals are to grow revenue by 40%, then you'll want to take this into consideration when negotiating with new prospects. You might recognize that a certain discount doesn't allow you to meet that 40% growth. You'll need to outline those numbers ahead of negotiations so you know the minimum price you're willing to accept.

For Stafford, he says there are times when it's easier to walk away than to continue negotiations. To determine when it's time to quit, Stafford looks to see if the customer shows a genuine interest in the value of a product or service beyond costs.

Stafford says, "If all the customer can talk about is a lower price, and they're not interested in anything we say in terms of demonstrating the value to their company or their workflows, then they're just price shopping, plain and simple."

"They are going to take our bid right across the street, and say, 'Here's the best price we're able to get from the vendor. What can you offer?' That's not negotiating in good faith. That's someone trying to come up with two price tags side-by-side."

Stafford continues, "For instance, when it comes to Dropbox, some people might just want to talk about storage. And there are companies that sell storage based on a rate card. But we don't sell storage. We power workflows. We power collaboration. And storage is a necessary element of delivering that value — but if someone comes in and asks me how much I charge for two petabytes of data, that's likely not going to be a strong negotiation."

Use the Right Tools to Make Negotiations as Simple as Possible

Lastly, you'll want to ensure you're using the best tools possible when negotiating with a customer to make the process easy for both your sales team and your customer.

As Stafford explains it, you'll want to start with a contractual agreement that has your quote on a pre-structured template. A pre-structured template enables your team to know what the best alternatives are, which sections are eligible for negotiation, and which are set in stone.

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It's important to ensure the tool also allows for easy collaboration. As Stafford told me, "For my team, we use our Dropbox signature product in order to provide a standard boilerplate agreement, so the customer can easily click 'Approve' and just move on to closing the deal."

He adds, "But beyond standard agreements, Dropbox enables customers to highlight, annotate, or comment on individual sections of the document and say, 'I'm not sure if I'm okay with this.' I think it's really important your team sets up the right software and tools to make these negotiations as easy as possible."

Ultimately, leveraging BATNA will help empower your team to ensure they're walking into negotiations with the information they need to succeed: Including your company's best-case scenario, your prospect's best-case scenario, and the agreement that will provide maximum value to both your business and your customer.