Selling & Business Models
When should a service business require a deposit, and how much is reasonable?
The short answer
Require a deposit when you reserve meaningful calendar time, buy nonreturnable materials, hire help, or take on cancellation risk. The amount should relate to your real exposure, not function as a punishment for hiring you.
Match the deposit to the job
For a short routine service with little setup, payment at completion may be simplest. For a multiweek project, use a deposit plus milestones tied to visible progress. For custom materials, collect enough before ordering so a cancellation does not leave you paying for items you cannot reuse.
Calculate the minimum protection:
nonrecoverable materials + committed outside costs + reasonable reserved-time risk
If materials are $180, a subcontractor requires $120, and you will turn away one $200 job to hold the date, your exposure is $500. A deposit far below that does not solve the problem. A demand for the entire project price before any work may create unnecessary fear unless the job is small or fully custom.
Put the trigger and terms in writing
State when the date becomes reserved, whether the deposit is refundable, which conditions allow a refund, what happens if you cancel, and how the amount applies to the final invoice. Do not call a payment “nonrefundable” casually. Deposit, advance-payment, cancellation, and consumer rules vary by location and service, so check local law and have qualified counsel review your terms.
Use a traceable invoice and business payment method. Do not collect card details by email or store them yourself. If a project is delayed, send an updated schedule before the customer has to chase you. The SBA’s finance guide recommends keeping a balance sheet and tracking accounts receivable and payable, useful habits when you collect money before final delivery (SBA finance guide).
Use milestones that feel fair
For a larger project, tie payments to events both parties can recognize: booking, approved design, materials delivered, installation, and final walkthrough. Avoid vague milestones such as “50 percent complete” unless you define them.
The deposit is part of the trust experience. Explain it calmly: “This reserves two workdays and covers the custom materials I order for your project.” A customer can understand that.
Sources and further reading
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