Competitors are the biggest reason why Ryan Parsons, co-owner of The Brothers That Just Do Gutters, in Lagrangeville, New York, is adamant about collecting a 50% deposit on every job sold. Since those jobs are usually around $2,000, that’s not an enormous amount of money. But securing it—even some part of it—is a matter of principle because once the Brothers yard sign goes up, rivals may knock, offering to do that gutter job for less. “I’ve gone as low as $50 on a job that cost several thousand,” Parsons says. Once they’ve written a check, he says, customers don’t change their minds.
When it comes to deposits, Parsons and others advise:
- Know what you can legally ask for. Some states regulate the amount of money, or the percentage of the job, that a contractor may request as a deposit. In Maryland, the contractor is allowed to ask for an amount up to a one-third of the job price. In California, “it’s illegal to ask for or accept a down payment of more than 10% of the total home improvement contract price or $1,000, whichever is less,” according to the Contractor State License Board. Check on restrictions in your state. If you can find out, so can homeowners.
- Be consistent and build it into your sales model. Asking for a deposit check may cause some stress. Understand why it’s necessary. “Most guys are weird when it comes to talking about it,” Parsons says. They’re anticipating how to respond if the homeowner demands an explanation. “Don’t be afraid to talk about [the deposit] up front,” he says. “I tell homeowners that this is what our policy is, and we can’t put you on the schedule without a deposit.” In addition, “nothing’s really happened until money changes hands,” says Kip Lee, a salesperson for New Bath Walk-In Tubs, in Savannah, Ga. “Sales with no deposit are not even sales.” Lee recently drove a prospect an hour’s distance so she could see installed work after she refused to give a 50% deposit. After that, she signed the contract and gave him a check.
- Discuss it as part of the overall payment plan. It’s much easier to ask for a deposit in the context of the overall project payment plan. That makes sense to homeowners. Salespeople for Mid-Atlantic Waterproofing, based in Maryland, ask for a third down, explaining that instead of asking for another third when the job starts, the foreman will collect the balance when the project—average job size $12,000—is completed. “We’re not going to be in the house that long, and we want them to have the feeling of being in control of their money,” national sales manager Bill Moulds says.
- Prepare to stand firm. However much you ask for, be sure you can explain why you need that amount. Darryl Rose, of Get Dwell, a handyman company in the Chicago suburbs, asks for the cost of materials plus markup plus labor to get the job started. On one recent $10,000 job—a built-in bunk bed system for three boys—the homeowner balked at paying what amounted to 70% up front. “He said there’s no way I’m going to sign that. I’ve gotten burned in the past.” Rose pointed out via email that there was a “huge material cost up front” and directed the homeowner to his company’s website with its many testimonials and awards. A moment later an email response gave the OK.
- Be creative. Commercial building managers budget for maintenance and repairs. Homeowners don’t. So not everyone who needs a new roof or gutters or basement waterproofing can write a check, let alone reach for their wallet. Often, says Joseph Tunney, president/CEO of American Design and Build, in Bel Air, Md., that deposit may be more than they thought it was going to be. If homeowners want the work done but hesitate, it’s up to salespeople to find out if the deposit is standing in the way. “That starts a negotiating process,” Tunney says. “We find out when they can get it, and write on the contract that the deposit will be mailed on or before that date.” The company pulls permits and orders materials after the deposit has been received.
- Choose your payment method. Many companies take deposits via credit card payment. That’s convenient for homeowners but it costs businesses 2% to 3% in bank fees. State your preference. Last year The Brothers That Just Do Gutters paid $38,000 in bank fees. So, Parsons says, it’s “cash or check preferred.” “[At Mid-Atlantic Waterproofing] we just say: would you rather pay cash or credit card?” Moulds says. Bank fees are “a cost of doing business,” he adds, at a time when more and more people pay by card.
- Don’t assume that a written check is money. To Rose, “it’s not real money until it has moved through the bank.” He won’t order materials or pay a subcontractor before the check has actually cleared. Rose says he has had clients ask if they can post-date the deposit check, or write two at different times in the week. “That’s an honest, up-front conversation,” he says. “But the check that was written on the account that was closed, or the one that bounced when no one told me there was that possibility … that tells me we have a trust issue.”
—REMODELING contributing editor Jim Cory is the former editor of REPLACEMENT CONTRACTOR.