Ask Ash: 'Should I Be Asking Clients for a Deposit? How Can I Make It Less Awkward?'

Dear Ash,

I’m a web developer who, after fifteen years working for a big company, decided to strike it out on my own. My goal is to spend next year traveling with my wife and two-year-old son—our adventure year, we’re calling it—and I’m going to need all the advice I can get.

My question is this: should I be taking a deposit from clients? And if so, how much? It feels wrong, since I haven’t done anything for them yet, but at the same time, I’ve had a few clients cancel projects on me last minute, leaving me in a tight spot financially. 

What’s the best practice on this? 

Sincerely,

Business Noob 

Dear Business Noob,

I need you to know we are all thinking “boob.” But I have to say I agree with you: the spelling “newb” is equally unfortunate. Could there be a less attractive word? (Yes, and the answer is “phlegm.” Also weirdly “chunk”—even though some sick part of me sort of likes it????????)

Ah, the age-old question of the deposit! 

TO CHARGE OR NOT TO CHARGE???

Let me give it to you straight: if you are not charging a deposit, you are destined to live a long and painful life juggling Hot Pockets at the dollar store. There may also be some Kraft macaroni and cheese involved.

The reason why I say this is 100-fold: 

1. Taking a deposit is a professional way of conducting business.
   The moment you don’t ask me for one, it sends up a red flag. You know what’s going through my mind? This guy might bail on me. Which is interesting, because it shows that a deposit is a two-way street: not only does it benefit you, but as a client, I also feel more secure, because it means that the likelihood of you just disappearing and ghosting the project is slim. Among professionals, a deposit is appropriate. It sends a message of professionalism, organization, experience, and good faith. Not charging a deposit feels willy nilly. 
2. Requiring a deposit shows that you take your time seriously, prompting a client to take your time more seriously, too.
   What a deposit says is this: we aren’t playing games. I’m committed to showing up, and your deposit indicates that you are, too. We are both on a level playing field. A client isn’t going view you as a random order taker on the internet who “should be grateful for the business” and is willing to do it for the low, low price of $9.99 (YUCK); rather, you’re showing them that you are a professional and you expect them to treat you as such. 
3. Deposits separate the tire kickers from the action takers.
   Someone who’s just price shopping you and has no real intention on hiring you can be quickly identified and eliminated from your pool of prospective clients. A client who is serious about engaging you is going to be happy to pay a deposit to ensure a spot on your calendar. 
4. Deposits help ensure predictable cash flow.
   When a client submits a deposit, the likelihood of them backing out last minute is slim, thereby enabling you to better manage your cash flow and financial projections—an important part of being a freelancer who has, um, plane tickets to Austria to buy. ;) 
5. HERE IS ANOTHER GOOD ONE: deposits also can act as a kill fee, in the event that a client DOES cancel the project last minute.
   What’s a kill fee, you ask? Despite sounding homicidal, a kill fee is actually a good thing: it’s an agreed upon amount that a client agrees to pay if they need to terminate the work. The reason why these are charged is because a freelancer has blocked off weeks, if not months in their calendar, specifically for that client, thereby turning away other work. That’s opportunity cost, and opportunity cost is important. You said no to other opportunities, in order to work on this project, for them. Therefore, if a client were to randomly cancel, you haven’t just lost their project: you also lost all the other project work you could have had. In order to protect you from that and make for an equitable exchange, kill fees are often times included in work agreements—and they’re often the amount of the initial deposit placed. 

So, what are best practices for charging a deposit, then? 

Well, there is a right way to take a deposit, and a wrong way to take a deposit, Jennings. 

LET ME TELL YOU ALL MY SECRETS. 

1. Best Practice #2 for Takin’ That Cash Without Flopping Like a Wet Fishy:
   
   Use passive voice. You just saw me do it there. Instead of “I require a 15% deposit to start work” which can feel awkward in the beginning, try “A 15% deposit is required to start work.” See the difference? This one tweak has saved the sanity of many-a-freelancer, and it works for everything! Instead of “I charge $150/hour,” it becomes “a fee of $150 per hour will be applied.” Instead of “I won’t be able to complete your project on time” it becomes “the project is going to require a one-week extension—do I have you’re okay on that?” 
   
2. Best Practice #3 for Takin’ That Cash Without Flopping Like a Wet Fishy: 
   
   Charge a percentage of the estimated total project cost—10%, 15% and 20% are common, and sometimes even 50%, with varying factors playing into that decision. Typically, bigger deposits are useful if you’ve got to purchase materials up front, if you’re taking on rush work of any kind, if you’ve snuck the client into your schedule to do them a favor, if the project has a fast turnaround (a week or two), or if you’re high in demand and can afford to call the shots. 
   
   On the other hand, smaller deposits are typical with longer project timelines and higher project fees. 
   
   The one thing I would advise here is not to forget to take the kill fee into consideration (if you want to do it that way). If a client randomly cancels 24 hours before the project is scheduled to start, will 10% of the total project cost be an appropriate compensation in proportion to what you expected when you took on the project? Or will it end up being just $100 (and therefore not remotely close to compensating you for that lost project)? 
   
3. Best Practice #4 for Takin’ That Cash Without Flopping Like a Wet Fishy:
   
   You can also outline a few different scenarios in your work agreements to ensure that deposits are fair.
   
   For example: 
   
   If a client cancels 30+ days out from project start date, the deposit is 100% refundable.
   
   If a client cancels within 30 days from a project start date, the deposit is 50% refundable. 
   
   If a client cancels within 7 days of project start date, the deposit is not refundable. 
   
   This will depend on your industry and the nature of your business, and how much goes into planning and scheduling a client. For example, if you’re a wedding photographer traveling to Sicily to photograph a wedding, you may require a larger up front deposit, and it may not be refundable within 6 months of the wedding date, to account for the costs you would have likely already incurred booking a plane ticket, making hotel reservations, arranging for a second shooter, etc.
   
4. Best Practice #5 for Takin’ That Cash Without Flopping Like a Wet Fishy: 
   
   Top secret pro strategy! You can use your deposit as a negotiation chip. 
   
   Let’s say you’re trying to book a high dollar project, and it’s one you really want. But, the client is hesitating on your fee. One thing you can throw in for the client to “sweeten the deal” is requiring a smaller deposit up front, and offer longer payment terms. This can shift a client from feeling overwhelmed by sticker shock, to making it far more approachable. Remember: smaller deposits + longer payment terms are your friend. (Use sparingly when you really want the biz to make sure your cash flow is still healthy.) 
   
5. Best Practice #6 for Takin’ That Cash Without Flopping Like a Wet Fishy: 
   
   This is some advanced-level cheese, but it may be a good idea to place your client’s deposit in a separate business bank account—almost like holding escrow—until the refund period has passed. I can’t tell you how many times I’ve heard horror stories from new freelancers who have taken a client’s deposit, then used it to live off of, and then HAD NO MONEY WHEN THE CLIENT WAS ENTITLED TO A REFUND.
   
   I know this is hard, because we all need money to live on, but if you’re in this position, try at least placing 50% of the deposit in a designated account for every project you do, so that way you can build up a little refund pot…in the event you need to access it. Don’t use it by the end of the year? Cool! Now you have extra money to put toward your taxes. 🤣 WIN/WIN. (By the way, if you’re already stressing about taxes, definitely sign up with the people who do mine. They are EXCELLENT for online businesses.) 
   
6. Best Practice #7 for Takin’ That Cash Without Flopping Like a Wet Fishy: 
   
   Don’t forget to get your client to agree to this! Work agreements are critical, and should always be used when entering into a new business relationship with anyone. You should holler at a business lawyer, which is way less intimidating than it sounds, and ask them to help you draft a contract specific to your biz. Then, they’ll sit down with you and go over any scenarios that could be specific to your work—like the wedding photographer example—and make sure you’re protected. 
   
   THAT SAID, in a pinch, you can use this top-secret hack: write up some simple terms via email, and ask your client to respond and confirm they agree. If they respond and confirm agreement via email, that email will stand as a written—and legally binding—agreement. Just make sure they actually confirm: you merely sending it is not enough. And make sure they don’t call you over the phone to verbally agree, either. (A phrase like “I’ll just need confirmation via writing for my records” is a fine phrase to keep in your back pocket.) 
   
   And, if all of this is absolutely foreign to you? Keep your eyes peeled. My remote business program will be launching again SOON.
   
   

Best Practice #1 for Takin’ That Cash Without Flopping Like a Wet Fishy: 

Tell your client right up front on the initial phone call how it works. I know you’re nervous about talking about price, but hear me out: the more confident you sound, the more confidence they’ll have in you. So I always recommend taking control of the conversation at a natural stopping point, and saying something like this: 

“Okay, so let me tell you a little bit about how it works.” 

And then, say something like this: 

“If we’re good to move forward, I’ll just need three things! First, we’ll agree on a project timeline, including start and end date. Next, I’ll send over my standard work agreement via email for your signature. And finally, a deposit in the amount of 15% of the total project cost is required to begin. This deposit holds your space on the project schedule, and the remaining balance will be due in chunks as we complete each phase. 

OH MY GOD I JUST USED THE WORD CHUNKS. 

You should probably say “installments” there, but I couldn’t resist.

Alright! Well if that wasn’t a productive conversation, I don’t know what is. In the meantime, I have a delicious bottle of New Zealand Sauvignon Blanc waiting for me in the kitchen, so can I add that as advice to this column, too? Try New Zealand??? I met a winemaker from New Zealand when I was living in Chile, who had opened his own urban winery in Valparaíso (on the coast), and then turned it into a wine hotel, and THEN INVITED ME AND MY FRIENDS TO COME HANG OUT, and that’s when I first learned of the joys of white wine from this glorious country that I really, really, really need to visit. How have I not gone there yet?! I have so many readers (you lovelies!) from New Zealand! I should be ashamed. But at least I can toast to you this evening in solidarity from my little weird farmhouse I bought in the country, whose bathroom tiles I have just demo’d, because I believe in gorgeous incomes from anywhere in the world doing shit you love, while also refinishing an old bureau in the backyard.

It’s a whole new level of work/life balance.

And Business Noob???

YOU ARE HERE FOR IT. 

To your adventure year! And so many deposits, your eyes cross. 

Love,

Ash

Share this post with a new freelancer you know who has dreams of traveling to New Zealand and eating chunks of fairy bread, which is something you absolutely need to look up because IT IS WILD.