Yup.... I work on projects that are, at times pretty large. (in my day job)  As part of the conversation, and I don't look for a special place to insert this line.... but I simply state, "as soon as I get a down payment of $____ I can put this one the schedule and order the parts I need to get started."
 
 
The very same thing applies to the music biz.... if the project is big enough, simply stating that you need a down payment to get started and reserve studio space and time is normal business practice. Asking if they would like to pay that now, puts them in the spot to either pay or not. Either way you know exactly what's going on and the client knows exactly how much this will cost. Read Jeff's post again.  Establish the price and your requirements and expectations up front and be confident.
 
In my daily business, I state all these things up front and I'm ready to walk if the customer tries to argue with me on one of the points in a way that seems to indicate they will be hard to work with on the job. Heck I even give them my competitor's name and tell them to call my competitors if I'm sensing they are trying to be a pain.

Guitarhacker
Heck I even give them my competitor's name and tell them to call my competitors if I'm sensing they are trying to be a pain.

 
I'm actually on good terms with some of my competitors to the point where I will call them to warn them about "difficult" customers I've refused to work with. Although I will admit to having steered a-holes to competitors I've had trouble with, lol....

sharke

Guitarhacker
Heck I even give them my competitor's name and tell them to call my competitors if I'm sensing they are trying to be a pain.

 
I'm actually on good terms with some of my competitors to the point where I will call them to warn them about "difficult" customers I've refused to work with. Although I will admit to having steered a-holes to competitors I've had trouble with, lol....

LOL...  yup, exactly.   I'm on good terms with most of my competitors. I even have lunch with one of them from time to time. He used to be my boss, but it's all good now.  At our last lunch, he told me that he has instructed his wife to call me to handle his business when he passes, as he is up in years now and his heart health is getting shaky,  and for us to work out an equitable deal for remuneration to her for the business. That one floored me.
 
I do have one competitor that I specifically refer the ...shall we say... more difficult folks to. I actually lost a customer to this one guy.... but... every time I had to deal with that customer and would give them a price for the work, they were always trying to get 20% or more added to the job for free and trying to make me feel like a clod if I said no. And 99% of the time I did say no.  But that's not my problem any more..... and I refer other equally troublesome potential customers to him..... " You'd probably be happier dealing with ______. You should call him, his prices are much lower than mine"

Oh man, I ended up having to cut the business relation sort of like that. He offered royalties on sales... I told him that I have to be guaranteed a minimum amount before hand. His argument was that (given that he's working on no budget) HE has no guarantee that he'll get and return on his own time, etc... I sent him off hoping he'd find someone who can do it for free or will take royalties.
 
This experience has shown me just how important it is to be a good businessman in this industry. I'm gonna be more confident in the future, because the frilly, ultra-polite speech (aside from not really showing who I really am) doesn't really make talking turkey any easier.

A promise for a cut of royalties doesn't pay the bills.  Unless it's a big superstar who isn't about to hit bottom again.....and they're not walking into your studio any time soon.....so....
 
If he offered a 50% royalty and sold enough to get $50 in royalties, would you be happy with that $25?  Would that cover your costs? 
 
And seriously, if the guy doesn't have the money to record, he doesn't have the money to promote it which means his sales numbers will be much closer to ZERO.  And 50% of ZERO is....... yup, you guessed it.... nada!
 
Don't feel bad for telling him to go elsewhere..... you saved yourself a ton of grief.  It's the ones who want it for nothing that also seem to be the most demanding folks.... "I don't like that, can we change this, I'm not feeling this version lets start from scratch and try something different".....
 
Nope, just let them go..... the next deadbeat will be easier to deal with.

I don't even think that type of arrangement is standard in the industry.  A cut of royalties might be a sweetener but I am pretty sure there is always a guaranteed cash payment for work done.
 
Let those guys walk, as GH said above, the ones who expect things for free are usually the biggest pains to work with since they don't value anybody's time and effort but their own.

CakeAlexS
You tell them straight.... 

 
absolutely.
 

sharke
... as if it's the most normal, reasonable thing in the world. 

It IS the most normal reasonable thing for a business.
 

sharke
Confidence will get you everywhere.

 
+1 on confidence. It is the mark of a professional. 
...
I start by asking, 
1. What are your goals? (in specific terms. i.e. how many sides, etc. )
2. How much time would they like to plan for? (taken with a grain of salt for the profiles being referenced)
 
Then pull out the calendar or bring in the admin and say ...
 
"We can book these dates -when- we get the down payment. I can hold them open for 2 days (or 2 weeks  depending on the timing of the project). Always a clear hard number. And then move on. 
 
A comment on future royalties. They're called spec jobs and while producers have been known to take points for select clients, I can't recommend it -unless- your client has a proven track record or your ambition/talent is artist management and promotion. 
 
Sounds like you have more sense than that. 
 

What is the down payment for? Do you need equipment to do the job? Are you reserving space? Is it a trust issue?  
I'm not begrudging anyone who requires a down payment, it is just something to think about when explaining it to the client.  Just tell them it is your policy.  
 
I never charge a down payment personally.  I simply do not trust independent contractors in any line of work who want money up front and I have never had a non-payment issue since I started my business.  If you own a studio which requires time reservations and expect the clientele to be flakes (like young bands) then I completely understand and you should get some upfront security for the work.  
 
Like most people say here, it is your policy, it is non negotiable, and it is the most normal thing in the world.  At least that is how you should approach it to your client.  
 
Edit:  I just read the royalty thing.  Obviously never, ever, ever, ever, ever.  You are not their publisher, you don't have direct control over distribution and sales.  You will not see a dime.  But you knew that and did the right thing: passed them off.  I used to do free recordings for student groups and sell CD's to the students.  After a few recordings of 2, 1, or 0 sales, I took that option off the plate.  It is flat fees and hourly rates.  

Always remember that there is nothing wrong with being a proper business person.
You can still be friendly about it ....but right up front you discuss your business out line, what it will cost the client, what the down payment will be, what the total fees will be and when is complete payment expected and what the expected out come will be....this way both parties know up front what to expect.
 
After all....when you go to a dentist or a doctor before you even get into the back office they ask you for your Co-Pay right?
 
Why should your business be any different?
If you run it like a business then it will be a business...
If you waiver and fall all over yourself then you need to change your focus and  concentrate on fun....
 
A quick story..
I remember one christmas on a Tuesday afternoon a guy called me up to ask if I would play classical guitar at his home for a dinner party on Saturday night. He wanted me to play for 4 hours. He asked my price. I told him $350.00. He choked and said that was a lot and would I consider taking $50. I asked him does he negotiate his daily pay EVERY DAY he goes to work? No! Why would you expect me to then?....He said he would think about it and hung up.....On Friday he called back and asked if I would reconsider...I said yes....it will now be $400 and it would be 50% up front at the door before I came in and in cash. He said fine.
I got $400, played for about 4 and a hlaf hours and got a bottle of sparkling grape juice for a tip!
Sometimes you win....sometimes you lose...but at least I tried to run it like a business...
 
Just saying