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I'm starting to get more requests for price quotes and just received my third commission, so I need to address the topic of deposits with my future clients to a greater level of detail than I'm doing currently.

Right now, I specify a minimum deposit required to begin building. Soon, I realize, I will have to specify that the deposit will hold the client's place in line.

My specific question has to do with refundability of the deposit should the client change his or her mind. My experience with other dealings regarding refunds is that the topic will come up sooner as opposed to later.

I did some googling on this topic, and found that it seems to be fairly mixed as far as deposit refunds. Some luthiers offer refunds, some don't, some charge a "processing fee".

Personally, I wouldn't mind issuing a refund if a deposit is made just to hold the client's place in line. But if I've already bought materials with the deposit money, then I'm not at all interested in refunding it. Since most likely the suppliers I deal with are not all that interested in refunds either. Shipping costs, repackaging, waiting, yadee-yadee. Headaches I don't need that take time away from building. "Processing fees" start making sense at this point.

So, just wondering how you folks have approached this and what seems to work best for you.

Best,

Michael
Michael McBroom38655.4885300926

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Live to Play, Play to Live

Michael,

I am by no means an expert because I have never sold a commission, however I bought an expensive classical guitar and here is how it worked for me, which BTW I thought was quite fair.

I gave an initial deposit to hold my place in line. Then I was required to provide half the total up front once the building began, and the rest upon completion. If I cancelled before building started, I received my full deposit back. If I cancelled after start of building, I received all funds back, LESS the cost already incurred. In this instance, the builder gets to keep all the materials, etc., so there was no need for him to return materials and try and get a refund. Also, most builders already have a decent stash of wood so I'm guessing the only real additional costs incurred might have been the Gilbert tuners I requested. Everything else probably just went back to his wood pile for the next customer. Of course if you have some odd or exotic wood requests, that would certainly be a factor.

Cheers!

John

I think it depends ... certainly on the instrument to be built, but additionally on how you want to market yourself.

Personally, I would make the deposit something fairly significant so people don't think "they have nothing to lose" by commissioning an instrument while they continue to "look around". Depending on the cost of the instrument maybe 20 - 30%. If they ask for a refund before you begin building or outlay any cash for materials then I think a processing fee (perhaps $500) would be a significant downside for them while some money for your trouble). That seems fair to everyone.

Once building commences I would get the balance of 50% of the fees up front and if they cancel at this point I would make the official policy that they get no refund, but are not obligated to finish the instrument. Then leave yourself some fudge room to be more generous if the situation warrants.

If a guy loses his job, or something terrible happens to him, of course you would try to ease the burden -- especially so, if it is an instrument that you could easily find a buyer for.

But if it is a highly personalized instrument that is out of the ordinary (thus hard to resell) and the only reason the customer does not complete is "he changed his mind", then there should be a significant penalty for that IMO. He is wasting your time and talent and there should be a price for doing that.

Then get the balance upon delivery and satisfaction. I would make the final payment their acceptance that the instrument meets or exceeds their expectations. That way you won't get people coming back to you later with minor issues, or to fix things that either they accepted, not relavent, or are customer originated. Of course we all want happy customers but you know how some people are just born PITAes. You need an escape hatch to drop them through.   

I think it is always best to make the official policy the most strict way you do business. It is always easier to be more generous than your policy (demonstrating what a good guy you are) vs. quibbling over the details of the policy once you have a situation to deal with. If it is all clear and up front then that will protect both you and the customer.

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Brock Poling
Columbus, Ohio
http://www.polingguitars.com

Visit some of the builder's websites and see how they handle those very topics. Decide what works for you

I require a 25% non refundable deposite to get on the list, then another 25% when building starts and final payment before delivery. If a person cancels before building starts it is non refundable but can be held as a deposite for a future guitar. I just had one client have to do that because of a change in financial status. If they cancel after building starts they get a refund on all but the orriginal 25%. I also give a 2 week mony back warrenty. If they are not satisfied they can return the guitar and get all but the orriginal deposite back. That can be then put towards another guitar at a latter time or, may be refunded if I am abler to sell the Guitar for full value at my discretion. No one has complained about this yet.

   I use the 3 thirds rule. 1/3 to take the commision 1/3 when started and 1/3 when delivered. I will refund if needs be but there is a 25% bench fee no matter what.   
    Most commisions are specifiv models and often some things cannot be returned or reused. If there are custom inlays that is not refundable but I will give that to the client.
john hall

The times I have charged for a commission (I don't really build for the market except to pay for the donation stuff occasionally)I charge the 1/3 deal as John does. The deposit really isn't refundable after a couple of weeks (I am not one with a waiting list, darn) as I have used the deposit for materials and they know that going in(I make sure tell them several times)If get enough sob story though I am pretty easy mark and probably give back except out of pocket stuff. Once start no way and want the other 1/3. That is refundable to a point only once the guitar is sold and for the amount of the original commission price. Minus the deposit if sell less than original commission price, sorry nothing back. I try and let folks know going in the way it is and write a contract to that point. This is too expensive to have someone want something and then change mind once going and then have to sale it. I have only once had to do this and ended up giving guitar away to 3d Recon brother.

Michael,
   Heres my deposit and cancellation policy in a nutshell.

I receive a deposit of 50% of the total cost of the guitar at the time that the order is placed.

The deposit is refundable in full within 30 days of the order date.

After 30 days, a 15% processing fee will be held if an order is cancelled.

Once construction of any guitar has begun, the cancellation policy is modified due to its custom nature and since materials and time have been dedicated to it and funds have been disbursed to initiate its build process. (You'll get as many sets of instructions on how to maintain your books as accountants you talk to so keep track of things and make them run in the way that best works for you and your specific shop situation.)

At this point any order can be cancelled, but the guitar will continue to be built and subsequently sold upon completion.

At the point of that sale, a broker fee of 20% will be held since the guitar had to marketed and sold again, and in most cases, with details and woods and options that made it custome to the desires of the original customer.

These are all just stipulations that pertain to idividual customers commissioning guitars.

Dealer orders are handled slightly differently due to dealer discounts for retail sales and the larger percentage of their smaller deposits being used to purchase m,aterials and cases and all needed to complete and deliver the guitars.

Regards,
Kevin Gallagher/Omega GuitarsKevin Gallagher38656.0032060185

I ask for a 500.00 deposit, That is fully refundable up until I start the guitar. One thing that i have been struggling with is taking deposits in the first place.
Since I build as a hobby, and also purly for enjoyment and not employment, I have been finding that a certain amount of pressure comes with taking a deposit. A pressure that I dont like, and one that makes me not enjoy building as much.

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Lance@LuthiersForum.com

Lance, that's interesting, because I have a similar feeling. I had a client pay IN FULL for a guitar when she placed the order. Though it was nice to have the cash in the bank, it was a terrible feeling knowing that I HAD to meet her expectations or come up with the cash (that I most likely spent most of).
As far as deposits, I get 1/3 down. I don't have a firm policy on refunds yet. That's something I need to get set in stone before I get burned.

I get a $350 deposit which is non-refundable. The deposit is small and I don't feel bad about not sending it back. Everyone knows this up front.

If the guitar is not up to their liking, then I refund the balance of the purchase price and when the guitar sells I refund the deposit.

John

This is a paragraph from my presentation CD explaining the deposit I have had some say it is too high but most of the big names are getting 100%. Also my starting price is much less than most, so that too must be considered.

To someone that has never commissioned a hand-crafted instrument, the following may seem steep, but please keep in mind, that your guitar is specifically custom built to your specifications. If for some reason you cancel your order while in process I would then be left with an instrument I am not likely to be able to sell to redeem my labor. The deposit is to insure you are as serious about this order as I must be about building it. I am more than willing to work with someone on the return of their deposit if unexpectedly faced circumstances such as family tragedies and natural disasters, provided they are honest and willing to work with me. I do not want your money if I do not provide you an instrument, but please if you know going in that you are likely to cancel, then please do not order.
     Deposit Schedule
           A 60% of total sale price deposit is required to reserve a spot in the building schedule. This deposit is 100% refundable prior to material order, 80% refundable less material cost after material is ordered, 60% refundable less material cost and labor at a labor rate of $10/hr after commencement of construction. If any custom inlay work has been cut and inlaid prior to cancellation of order, the deposit is 50% refundable less material cost and labor at a labor rate of $10/hr. No materials will be ordered nor will construction be started prior to receipt and bank clearance of the deposit. The balance will be due at pick-up/delivery or prior to shipping if shipping is required.

Wow, I'm really surprised at how many people won't refund a deposit before building has commenced. I totally understand the situation where wood has been ordered, or work begun, but why keep a deposit where nothing has been done yet except for a potential client sending you a check? It almost sounds like some are trying to trap the customer into buying. Don't take this the wrong way, I'm just asking the question because I don't understand what service you provided that justifies keeping a decent size deposit. Surely you don't feel justified in keeping a deposit because maybe you spent time on the phone or e-mailing a customer about your guitars? I think that overhead must be rolled into the cost of your guitars, not at the cost of potential deposits.

My next question is--how many of you have ever kept a deposit when you didn't commence building (or ordering supplies) yet? Or more interestingly, how did the customer react in that situation?

Sorry if I offended anybody here, I'm just very interested in the dynamics and rationale behind the justifications.

Cheers!

JohnJohn Elshaw38656.5866898148

I have twice now held a deposite, in both situations it was where the customer has hyad a shortage of money and couldn't come up with the rest to start the building process. In both cases they are still planing on having me build them a guitar when they have the cash flow so asked me to keep the feposite towards that. They stay at the top of "the list" although my list is pretty short right now.

John, in my experience, people get the "bright and shiny" syndrom of guitar buying. They don't realize that the money involved is substantial and they change their mind. I think it's a way of making sure that people are serious about placing an order. If you say "once you sign on the line, this $ is mine" I think they will be more apt to be serious customers.
I had one client have to cancel before anything was purchased. His wife left him for another man and ran up a ton of debt on their combined credit cards that he was now responsible. I felt bad for him so I refunded his deposit. If he gets out of that financial mess, he's at the top of the list.

Hi John

You have to remember that you may well have lost sales because of your waiting list, which you could of had if that build slot wasn't occupied. I have only ever had one guy drop out, and I refunded in full because I hadn't commited expenditure to anything I could not sell, and I had someone to fill the slot.

John I guess what you said about having already bought material is where I was coming from in my case and not all are for sure like me. I am not one with a big stash of woods. Normaly I have what I am planning on building for my folks, and personal say to sale at a music store of a friend who sales them at no cost to me although I do give him 20%, but he gets more out of my stuff than I ask for sometimes. When I have had the few custom things (only 4) I added up most of the cost and told them the deposit was for me getting wood or whatever. I also have left it open for 3-4 weeks and then call to make sure no change of mind or problems, If get go ahead I make the wood buy. Once started, I let them know and ask for another 1/3, then it goes as stated before on final sale and all of that. I now have had 6 wanting me to build when get shop set up next month or so (moving back home and setup again) I will probably do same as have been. If get to point where have racks of wood that may change. If a person really backed out and needed to, I would give it back. I would just make it a donation guitar and move on. Once started and built though it has alot more into it and need to do something to make up the cost.

For a while I debated this and came to the concusion that I needed the client to be as seious as I am about the project. Twice I got used as a savings account, some where they could safely store their money to retreave later when they found a cheaper or quicker guitar.

I do not want anyones money if I do not build them a guitar. but buy the same token someone that orders a guitar, then cancels the order, even prior to ordering materials or starting work has wasted probably 5 to ten hours of my time.

As I stated I refund 100% up till material order, then pro-rate after that. I will cut a deal with someone if there is nothing out of the ordinary about the the work done. But you would have to have a good reason for backing out at that piont to get it all back.MichaelP38656.6482175926

I think there is an implied committment when someone holds a place in line. They are presumably occupying a space that others would like to have, and that space has some value -- both to the builder and to the others who are waiting.

The non refundable deposit simply underscores the fact that this is a serious committment and one that should not be made lightly.

As I mentioned above, and Paul illustrated with his situation, it is always easier to be more generous with your policy if the situation warrants.

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Brock Poling
Columbus, Ohio
http://www.polingguitars.com

I am in ther process of Ordering a new sail for my sail boat and there policy is a 50% non refunadable deposite and the rest when complete. They won't start on my sale for a couple of months but the deposite gets me a place in line. I am having it made by one of North Americas largestr sail lofts so it isn't like they need to order materials or anything but still, If I change my mind I loose the deposite. They want to know I am serious befor they even start thinking about the job. A customer of mine (who is now on my waiting list) was planning on ordering a Martin, they wanted 50% down. Shouldn't we be the same.arvey38658.5241550926

Right off the top, I have to remind y'all that I've not built one yet, and so
have never dealt with this issue in relation to guitars except theoretically.

That said, I *have* done custom software design & programming, and a
LOT of time and energy can go into developing things to the point where
a contract CAN be signed; at that point, I've already done 20-40 hours of
work on the project: a deposit pays for the work I've already done
developing the project, AND it assures me that I'm not being jerked
around. The deposit also secures a place in the queue, and if my queue
is full, I may lose paying work to another developer, but that's okay
because I'm only counting on the queue for income: letting clients bail &
take their deposits with them screws ME - and I don't like getting
screwed...makes me cranky! I have to plan things financially

I have a family, I have a mortgage, I have a kid in college: with a
refundable deposit, I'm not being responsible to myself, or to them, and
I'm making things easy for others at the expense of those who depend on
me. Not acceptable. I'm a generous guy, and I've never screwed anyone,
and it always pleases me when I can be magnanimous, but I hope never
to let someone take advantage of me & then have to tell my kid she has
to go to a cheaper school next year because of it.

Contracts - and non-refundable deposits - help assure that EVERYONE is
fully informed and NO-ONE gets taken.

(hope my language falls in the realm of acceptability - if not, I'll edit it)

Back several years ago, before I started building I checked on a commissioning a guitar with several well known luthiers(about 4 if I remember right) and a three different schools of luthierie. Every one of them required 100% up front. Most had a year waiting list and some 2 year. A couple had a 50% cancellation fee after 3 months on their list. Some were none refundable and only one said that the deposit was 100% refundable prior to material acquisitions.

if you are going to refund deposits/progrss payments why bother collecting the money and going through the paperwork grind in the first place. to me it seems totally pointless.

i have refunded deposit money at my sole discretio when a buyer passed, and for other family tragedies(and losing your job is certainly at least a minor tragedy for most folks) but as far as my commission/sale conditions are concerned, deposits and progress payments are strictly non-refundable.