How Much Deposit Should a Contractor Ask For?

How to set a fair deposit, structure progress payments and stay within your state's rules.

A deposit protects a contractor from a customer who cancels after materials are ordered or a date is held. It also shows the customer is committed. But asking for too much upfront can scare off good customers, and in some states it's not allowed. Here's how to think about deposits and how to put them in writing.

What a deposit is for

A deposit should cover a real risk, not just give you cash in hand. Common reasons:

• Materials ordered for the job, especially custom or special-order items that can't be returned, like cabinets, windows, vinyl colors or stone.
• Holding a date in a busy season, when saying yes means turning down other work.
• Design or planning work done before the job starts.
• Mobilization, such as permits, equipment rental and dumpsters.

If a job has no upfront costs and a short duration, like a small repair, you may not need a deposit at all.

Check your state's rules first

Several states regulate how much a contractor can collect before work starts on residential home-improvement projects. For example, California limits the down payment on most home-improvement contracts to 10% of the contract price or $1,000, whichever is less. Other states have their own limits, required contract language or rules on how deposits are held. These rules change and can differ for licensed contractors, new construction, swimming pools and other specific project types, so check your state's current rules or contractor licensing board before setting your deposit policy.

Common approaches

Within whatever limits apply to you, contractors commonly use one of these approaches:

• Percentage of the job. A set percentage at signing, with the rest due later. Simple and easy to explain.
• Materials-based deposit. The deposit covers the cost of materials ordered upfront. Customers understand this easily because it's tied to something concrete.
• Flat booking fee. Common for services like events, cleaning or photography, where the main risk is holding the date.
• No deposit, progress billing. For larger jobs, payments tied to completed stages can replace a big upfront amount.

Use progress payments on bigger jobs

On remodels, roofs, decks and other multi-week projects, a payment schedule tied to milestones works better than a large deposit. For example: a deposit at signing, a payment when framing or rough-in is done, another at drywall or tile, and the balance at completion. Each payment should match work actually completed, which keeps both sides comfortable. Some states also regulate progress payments so they don't exceed work completed, which is another reason to check your state's rules. See how this looks in the kitchen remodel estimate template or the deck estimate template.

Factors that justify a larger or smaller deposit

• Custom materials: the more you must order upfront, the more a deposit makes sense.
• Job length: long projects need a payment schedule, not one large deposit.
• Customer type: repeat customers and commercial clients with established terms may not need one.
• Your cash flow: if you can't front materials, plan the schedule around that, within legal limits.

Put the deposit in writing

A deposit causes trouble when its terms are vague. On the estimate or contract, include:

• The deposit amount and what it covers.
• When it's due and how it can be paid.
• Whether it's refundable, and under what conditions.
• How it's applied to the final price.
• The remaining payment schedule.

You can add these terms in the notes of the estimate maker, which also lets you set the deposit percentage so it shows clearly on the PDF.

Give a receipt for every deposit

When the customer pays, send a receipt that shows the amount received, the job it applies to, the total price and the remaining balance. It protects both sides if there's ever a question about what was paid. Use the deposit receipt template or the general receipt maker.

What to do if a customer pushes back

Some customers hesitate to pay anything upfront, often because they've heard stories about contractors who took a deposit and disappeared. Offer reassurance instead of dropping the deposit: share your license and insurance details, explain exactly what the money pays for, and offer to order materials only after the deposit clears. For some jobs, paying the supplier directly or reducing the deposit and adding a milestone payment can be a fair compromise.

Be ready to explain it

Customers are more comfortable with a deposit when they know why it's needed. A simple sentence like "The deposit covers the cabinets, which are custom-ordered for your kitchen" builds trust far better than a bare percentage.

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Frequently asked questions