Reservation Price Setting

Your reservation price is the worst deal you'd accept before walking away—the point of indifference between accepting the deal and pursuing your best alternative. Setting this correctly is the single most important piece of negotiation preparation, yet most people enter negotiations without having done the rigorous analysis required. Your reservation price should be derived directly from your BATNA (best alternative to negotiated agreement), not from aspirations, emotions, or arbitrary targets. If your next-best job offer is $120K, your reservation price in a salary negotiation should be at or above $120K. If your alternative to selling is to keep the business running, your reservation price is the present value of expected future cash flows.

When to use it

During negotiation preparation, before any offers are exchanged. When you're deep in a negotiation and feeling pressure to accept a deal—check it against your pre-set reservation price. When evaluating whether a deal on the table is genuinely good or just feels good relative to a bad anchor.

How it can help

Before every significant negotiation, write down your reservation price and the analysis behind it. Be brutally honest about your alternatives—inflating your BATNA leads to unrealistic reservation prices that cause you to walk away from good deals or bluff unconvincingly. Conversely, underestimating your alternatives leads to accepting deals worse than necessary. Once set, use your reservation price as an absolute commitment device: if the best available deal is worse than your reservation price, walk away regardless of emotional investment or sunk costs. This prevents the common trap of accepting bad deals because you've spent time negotiating.