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

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

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 

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