Deposit and Retainer Policy

Deposit vs. retainer

A deposit is a portion of the project price collected before work starts (commonly 25-50%). It's applied against the final invoice or refunded if the project is canceled before work begins.

A retainer is a recurring fee that reserves capacity (e.g., \$5,000/month for ongoing legal advice up to 10 hours, or to hold a guaranteed slot in an agency's roster). Used by lawyers, consultants, and creative agencies. Often non-refundable — the customer pays for access, not specific deliverables.

Why both work

A deposit funds the most cash-intensive phase of a project (initial labor before any progress invoice can land). It also screens for customer commitment — a client unwilling to pay a 30% deposit is a significant predictor of payment problems later.

Retainers smooth revenue and cash inflows into predictable monthly chunks. Even a small retainer practice (3-5 retainer clients out of a 20-client book) materially de-risks payroll. The trade-off is you must deliver the agreed-upon access whether or not the client uses it that month.

Setting the percentage and enforcing the policy

The right deposit percentage depends on how much of the project cost is front-loaded. For a project where most labor is incurred in the first month, a 50% deposit is reasonable; for a 6-month project with smooth labor, 25% is more typical. The principle is that the deposit should at least cover the labor and direct costs you'll incur before the next billing milestone — otherwise the customer is using your cash to fund their project.

Make the policy visible and consistent. If deposits are only required for new customers, you'll never get to the point where existing customers accept them; if they're required for everyone, the conversation becomes 'this is how we work' rather than a negotiation. The few customers who refuse usually self-select out — and they tend to be the ones you'd later regret signing.

Treat the deposit as deferred revenue, not as revenue. The cash is in the bank but the work hasn't been earned. Posting it to deferred revenue keeps your P&L honest and prevents you from over-distributing or over-spending against money that hasn't yet been earned. Recognize the revenue as the work is delivered, in lockstep with milestone billings.

If clients push back on the deposit, offer two pricing tiers: standard pricing with the deposit, or a 5-10% surcharge for net-30 with no deposit. Most clients pick the deposit; the few who choose the surcharge are paying for the working capital they're using, which is the right outcome economically. Either way the policy holds and the conversation is structured.