How much deposit should a small business take?
The right deposit is the smallest one that covers what a cancellation would really cost you. Here is how to find that number for your own bookings.
The question behind the question
How much deposit should I take is really two questions wearing one coat. The first is how much money you need up front so that a cancellation does not leave you out of pocket. The second is how much you can ask before the customer decides to think about it and never comes back. The right number is the smallest one that answers the first question honestly, and the whole decision gets easier once you stop hunting for a convention and start looking at your own costs.
There is no standard figure, whatever you have been told. A venue holding a date eighteen months out and a studio fitting someone into a class next week are exposed to completely different amounts of money. The same percentage cannot be right for both, and a number copied off somebody else's website is a guess about a business that is not yours.
Work out the floor: what the booking has already cost you
Take one typical booking and list what you would actually be down if the customer disappeared the day after they paid. Three things usually make up the list. Money already spent on their behalf: a deposit sent to a caterer, materials ordered, a sub-contractor held for the week. Time already spent that nobody else will pay for: the site visit, the quote, the phone calls. And the opportunity, which is the date you took off the calendar, the place in the programme you stopped offering, the room you turned another enquiry away for.
That third one is the item most people leave out and usually the largest. If you hold a Saturday for a year and the booking collapses a month out, the loss is not your admin time. It is a Saturday nobody else can buy.
Add the three together and you have a floor. A deposit below that line means a cancellation is yours to absorb every time, and no policy wording changes the arithmetic. Anything above it is a judgement call rather than a calculation, which is a far more comfortable place to decide from.
Then the ceiling: leave something worth spreading
The upper limit comes from the other direction. If the first payment is most of the price, you have not really spread anything. You have asked for the money with extra steps and a schedule attached, and the customer can tell. Somewhere around a third of the total is where a deposit stops reading as a commitment and starts reading as the bill.
Operators who have run this for a while tend to sit between a tenth and a third. Low in that range when the balance is comfortably spread across several months and there is time to notice a problem and fix it. High when the date is close, when your own costs land early, or when the thing you are selling cannot be resold at short notice.
One test before you fix the number: could you hand it back without resentment? If the honest answer is no, write that into your policy in plain words instead of quietly hoping the question never arrives. A deposit you would argue about is a deposit priced slightly wrong, or described slightly wrong, and the argument always costs more than the difference.
Percentage or flat amount, and letting the calendar move it
A percentage scales by itself and is easy to quote: twenty per cent today, the rest across four dates. It suits a price list with a wide range, because the amount due on a small booking stays small.
A flat amount suits work where your exposure is the same whatever the total comes to. If every booking begins with the same two hours of preparation and the same supplier payment, charge for that and stop taking percentages of numbers that have nothing to do with it. Customers also find a flat figure easier to agree to, because it is a thing rather than a sum to check.
Then let lead time move the number instead of moving the price. Booked a year ahead, ask for less today; there is plenty of room for the rest. Booked six weeks ahead, ask for more, because there are only one or two dates left before you need the money in the account. Same product, same customer, different exposure: the deposit is the part that should flex.
Whichever you choose, reduce it to one line and put that line where the customer agrees to the schedule, beside the dates themselves. Four hundred today, then three hundred on the first of each month, last payment two weeks before the day. A deposit a customer can read in ten seconds and check against a bank balance is a deposit you will almost never have to defend.