Should you accept that job? Defining a reservation price

There comes a time in all of our lives (approximately every three years) when we must decide whether to change jobs. This decision may seem difficult (and it is). But it’s negotiable!

Now, negotiating a new job offer requires a whole host of negotiation concepts and skills, including the ones I’ve described in recent posts. But today, I’ll focus on one that becomes particularly important when you’ve actually gotten a job offer and are deciding whether to stay or go: your reservation price.

To be clear, this is the situation: you’ve already looked far and wide for the best alternative opportunity; you think you’ve found it, and they extended an offer. This alternative job, in the parlance of the last post, is your BATNA. You’re now deciding whether it’s good enough to get up and go.

Now’s the time to consider your reservation price. It may sound technical, but the concept of reservation price is already second-nature: it’s just your bottom line. How you define a reservation price and what you do with it, though, is more like third or fourth nature for many of us. That’s where this post seeks to help.

Suppose, for the sake of argument, that your current job pays $50,000. You like the job; your coworkers are friendly; the commute is manageable; you see a clear career path forward. It’s just that pesky $50,000, which doesn’t seem to pay the bills and still leave enough for that long-awaited Hawaiian vacation. Thus, you decided to hit the job market and eventually found a similar job in the same field. Though waiting for the actual offer, you do have some concerns: your prospective coworkers don’t seem all that welcoming; you would have to drive 45 minutes instead of 20; and you’re not sure of the promotion opportunities. Now—before you receive the offer—is the time to define your reservation price.

In any upcoming negotiations over the new job, you will have a BATNA—your current job—and it will have a value: the $50,000 salary. Yet, $50,000 is not your reservation price; your reservation price is your numerical bottom line, adjusted for all of the intangibles. $50,000 doesn’t yet reflect the intangibles. Since you like your current coworkers, commute, and career prospects, you might say to yourself: “Self, I will not accept the new job with ambiguously-friendly coworkers, a longer commute, and unclear prospects unless it pays at least $60,000. That number, not the $50,000 salary, is your reservation price. The extra $10,000 makes up for the intangibles.

Now the situation becomes a lot clearer. If the new employer extends an offer of $65,000, you should probably eventually accept it; if they extend an offer of $55,000, you should probably negotiate. If you deploy your best negotiation tactics (and hopefully the previous posts will help) but still can’t clear the $60,000 hurdle, then you should probably decline.

Easy enough, right? Yet, few people define a clear reservation before entering into a negotiation. Still fewer both define a reservation price and then resist the temptation to “adjust” it once the offer comes in. Receiving the $55,000 offer, they convince themselves it’s “good enough.” But to perform reasonably well in negotiations, this is exactly what you cannot do. Only by clearly defining a reservation price and sticking to it unless your BATNA changes dramatically can you hope to avoid a poor outcome.

Reservation prices don’t have to be prices; they can be conditions: “My office has to be in Fort Worth rather than the Dallas to accept this job” (for example). Regardless, my advice to any negotiator would be to understand with clarity where the line falls between what will and will not work. Drawing and not deviating from that line, though far from easy, is nothing short of essential.

Have you defined a bottom line in a previous negotiation? How?


9 thoughts on “Should you accept that job? Defining a reservation price

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  8. I know this article too well, and it was probably the driving factor on why I did not initiate the first offer during our BioTech exercise. I used to feel that no matter how well I thought I knew the market, I severly underpriced myself. However, you let them set the price, and then when they quickly accept your counter offer, you realize you still undercut yourself. There doesn’t seem to be, at least in my industry, a satisfactory repository of salary expectations. How do you prepare for first offer when you do not know what is reasonable?


  9. Thank you for the comment. You are right you may not want to make the first offer if you are at a severe informational disadvantage relative to the other side. However, if you and the other side have a similar lack of information, it’s generally in your best interests to move first. In the absence of objective data on which to base to offer, you have to turn to information in the public sphere (such as the valuations at the end of the Biopharm-Seltek case), or to information gathered from your network. If this doesn’t feel sufficient, remember that the other side is also often suffering from the same lack of information. It’s never easy or risk-free to move first, but it’s often worth the risk.


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