Why your contract needs a kill fee (and how to set one)

The project is two weeks in. You’ve done discovery, you’ve written the brief, you’ve blocked your calendar for the next six weeks. Then the client emails to say they’re “pausing” the project — they’ll be in touch when things settle down.

You invoice for what you’ve done. Maybe they pay it, maybe they dispute the invoice. Either way, you’ve lost six weeks of capacity at full commitment for a fraction of the revenue.

Kill fees exist because this happens constantly, and without a clause that accounts for it, all the risk sits with you.

What a kill fee actually is

A kill fee is a cancellation payment — a percentage of the remaining project value that the client owes you if they terminate early. It’s not a penalty for bad behaviour. It’s compensation for the capacity you committed and the opportunity you turned down.

When a client books a six-week engagement, you decline other work. If they cancel at week two, that capacity is gone. You can’t refill it immediately. A kill fee acknowledges that.

How to structure it

A simple model: a percentage of the remaining unbilled work, decreasing as the project progresses.

• Cancel before kick-off: 25–50% of the full project value
• Cancel in the first half: 50% of the remaining value
• Cancel in the second half: 25% of the remaining value

The logic: early cancellation costs you more because you have more time to fill. Late cancellation hurts less because most of the work is already done and mostly paid.

For ongoing retainers, one month’s notice as a minimum is the standard. Some freelancers require two months for contracts above a certain value.

The clause itself

It doesn’t need to be elaborate. One paragraph:

If the client terminates this agreement before completion, a cancellation fee is due equal to [X]% of the remaining unbilled project value. This fee is payable within [14] days of termination notice. Work already delivered is invoiced at the standard rate regardless of cancellation.

Two things to include: the percentage, and the explicit statement that completed work is billed separately. Clients sometimes assume a kill fee covers everything — it doesn’t. The kill fee covers your lost capacity. The completed work is still owed.

The objection you’ll get

“We might not need to use this — why do we need a clause for it?”

Because the clause isn’t about distrust. It’s about clarity. A project with no kill fee clause leaves both parties guessing about what’s owed if things change. The clause removes the ambiguity before it becomes a dispute.

Most clients accept a kill fee clause without pushback when it’s presented alongside other standard contract terms. It becomes a problem only if you introduce it after a cancellation is on the table.

When to enforce it and when not to

Enforce it when the cancellation is unilateral — the client changed their mind, shifted priorities, ran out of budget. You did your part.

Consider waiving it when you contributed to the problem. A scope that was badly defined, a relationship that deteriorated, work that didn’t land. A kill fee in that situation creates resentment and a bad review. Sometimes a clean exit at cost is worth more than a contractually correct one.

The clause gives you the option. It doesn’t require you to use it.

The relationship with payment terms

A kill fee works alongside clear payment terms in the contract — not instead of them. The kill fee handles early termination. Payment terms handle what happens when a client pays late. Both are part of the same structure: you’re building an engagement where the financial risk is shared, not absorbed entirely by you.

If a client refuses both a kill fee and reasonable payment terms, that’s information about how they view the relationship before it starts.

Timescanner tracks your hours and billing periods by client, so if a project is cancelled mid-way, you have the complete documented record of what was delivered and when. Works with any iCal-compatible calendar.