Question
How do you determine the proper amount of deposit on a job? I usually ask for the cost of materials as a deposit. I work by myself and cannot afford to take any type of financial setback.
Forum Responses
From contributor C:
We have a two-person shop. We're brothers and partners and have been in business for just over 18 months.
We started out by asking for materials. Then we started asking 50% and now we're considering 75% due to cash outlay for materials, plus you still have overhead and payroll to consider while you are working on that job. I think that would be reasonable. I think Lowes requires 100% up front to order production cabs!
It is normal to require a deposit for custom work. Half for small jobs, maybe a third for larger jobs. I would walk away if someone were to ask me for a 75% deposit on anything. It's very unprofessional to pull the sob stories on customers. If you need more money to get ahead, get a loan or work more hours to catch up. And don't piss away the company operating money on things you just want. That comes later when you have more money. That's the way businesses start. Bypassing the hard work makes you a con man. That's convincing people to pay more than it's worth. Profits are made by selling products at market rate, and increasing the efficiency of your production methods.
You stated, "I would walk away if someone was to ask me for a 75% deposit on anything." That is your right. I use the deposit as a qualifier. Yes, I could place a lien on your property after it's done and it's too late. If you wanted me to build you an $18,000 kitchen and didn't want to pay a 50% deposit, I would walk away.
You stated, "It's very unprofessional to pull the sob stories on customers." I never discuss my business matters with customers. I don't make excuses for my deposit requirements. That is my right and my terms.
You stated, "If you need more money to get ahead, get a loan or work more hours to catch up. And don't piss away the company operating money on things you just want." I don't piss away my capital. You certainly make a lot of assumptions just because you have a differing opinion on how a business should operate.
You stated, "Bypassing the hard work makes you a con man. That's convincing people to pay more than it's worth." Which hard part are you talking about? The hard work of obtaining larger lines of credit because you like to take on work for small deposits? Asking for a 50% deposit makes me a con man? I deliver on what I promise and try to exceed my customer's expectations.
How do you theorize that a 50% deposit devalues a person's product or service? Increasing deposits may actually increase your bottom line if you are using a line of credit to float your business overhead month to month. But you are right, the market will determine success. If your deposits are too high, the market will respond accordingly.
I have a small woodworking company that specializes in high-end residential projects. Never lose sight of the fact that we are cabinetmakers and not kidney surgeons. This is a pure luxury and if you want luxury, you have to put your money where your mouth is.
We have never lost a client over a deposit payment. In fact, anyone who can afford our work is a successful businessperson and only respects our contract terms and thoroughness.
I have worked with several cabinetmakers over the years that have lost their business because of one customer that did not pay at the end. No lie. No money to sue them.
And I have seen many con men in action. Two jobs nearby, that are current. The contractors decided that the bid was messed up, so no money left to complete the job. So they packed up and left the customers wondering what the hell happened. And no money to sue the contractor with.
So it goes both ways. It's a fine line a businessmen walks to run a shop successfully. I've worked for millionaires. It's nice when you can just bill them once a month and you know the money's coming. But you have to work with the regular folk and meet them somewhere in the middle. The less a client knows you, the more wary they will be of you. Remember, you want their business as well as future references. Word of mouth is a cabinetmaker's best friend.
And try not to compare your product with manufactured cabinets. Most small shops I know don't spend anything on marketing. But the pre-designed and built cabinets need a very large budget to sell to the public. Different deal - it's like you building 10,000 chairs, and then having to hit the streets to sell them. Custom work is pre-sold.
Commercial jobs have varied from 50/50 to net 30 after the GC got paid (that one brought on a major cash crunch and necessitated an additional short-term loan).
Comment from contributor A:
Any work that I do that requires installation will require a 50% deposit at the time of contract signing, 25% when work is started and the last 25% after installation of the cabinets. Work that does not require installation, ie. bookcases, desks, tables, requires a 50% deposit at contract signing and the other 50% at time of delivery. I always call two days before delivery to set up a time for delivery and to remind them of the amount due. So far I've had no poblems getting the final payment.
