Kill fees: what to charge when a client cancels mid-project

A client cancels halfway through a project. You have done real work, turned down other jobs to make room, and you hold a half-finished set of files. Without a kill fee clause you are left negotiating at the worst moment. This post shows three ways to calculate a kill fee, a worked example, and the wording to put in your agreement.

What a kill fee is for

A kill fee is a payment due if a client ends a project before it is finished. It covers two things: the work you already did, and the cost of the space you reserved and can no longer fill.

It is not a penalty. It is a pre-agreed way to settle a cancellation. Clients tend to accept it more easily when it is written down before the project starts, because nobody is angry yet.

Put it in the agreement before work starts

A kill fee only works if the client has agreed to it in writing. Raising it after they cancel turns it into a dispute.

Add three things to your agreement:

• When it applies. Any cancellation by the client after the project has started.
• How it is calculated. One of the methods below, with the numbers or percentages stated.
• When it is due. For example, within 14 days of written notice.

If you already write a clear scope statement, the kill fee clause can sit right beside it. Both answer the same question: what exactly did we agree to?

Three ways to calculate it

Pay for work done

The client pays for everything completed up to the cancellation date, minus what they have already paid.

This is the simplest and the easiest to defend. Its weakness is that it ignores the capacity you held back for the rest of the project.

Work done plus a share of the remaining fee

The client pays for completed work, plus a percentage of the unbilled balance. Many people pick 20 to 30 percent, but the right figure depends on how much other work you turned away. Choose a number you can explain in one sentence.

This covers the gap left in your schedule. It also gives the client a reason to cancel early rather than late, because the remaining balance is smaller.

A fixed fee by stage

You divide the project into stages and state a cumulative amount due at the end of each one. If the client cancels inside a stage, they pay through the end of that stage.

This is the clearest for the client because they can see the cost at every point. It works well for projects with clean milestones.

A worked example

Say a project has a fixed fee of $12,000. The client paid a 30% deposit up front: 12,000 x 0.30 = $3,600.

The client cancels when half of the work is done. Your time log shows 60 hours at an internal rate of $100 an hour: 60 x 100 = $6,000. That matches half of the fee, so the value of work done is $6,000.

Here is what each method gives.

• Pay for work done. Work done is $6,000. Less the deposit: 6,000 - 3,600 = $2,400 owed.
• Work done plus 25% of the remaining fee. Remaining fee is 12,000 - 6,000 = $6,000. Twenty-five percent of that is 6,000 x 0.25 = $1,500. Total earned is 6,000 + 1,500 = $7,500. Less the deposit: 7,500 - 3,600 = $3,900 owed.
• Fixed fee by stage. Say the agreement states 20% after discovery, 60% after production and 100% at delivery. The client cancelled inside production, so they owe through the end of that stage: 12,000 x 0.60 = $7,200. Less the deposit: 7,200 - 3,600 = $3,600 owed.

The three results range from $2,400 to $3,900. None is wrong. Each reflects a different decision about how much of your reserved capacity you want covered. Pick one before the project starts and use it every time.

Keep the evidence

Whichever method you use, you need proof of work done. That means dated deliverables and a record of hours. If you log time against the project as you go, the figure above comes straight from the log. A tool such as HireOrSell can record time against projects and milestones on its paid plans, but a plain spreadsheet works if you keep it current.

Save the approved milestones and the last files you sent. If the client disputes the amount, those are what you will point to.

What to do on the day they cancel

Stay factual and fast.

1. Ask for the cancellation in writing. An email is enough. It fixes the date the kill fee is measured from.
2. Stop work. Do not carry on in the hope they change their mind. Time after the notice date is not billable under most agreements.
3. Send an itemised statement. Show work completed, the method from the agreement, the deposit received and the balance due.
4. Hand over what they have paid for. Check your close-out steps so files, access and credentials go back cleanly. Agree whether unpaid work stays with you until the balance is settled.
5. Invoice with clear terms. Use the same late fee rules as any other invoice.

Keep the tone neutral. The agreement does the work, so the message does not need to apologise or argue.

Connect it to your deposit

A deposit is the first line of protection. It means you are never fully unpaid when a project stops. If you want to set one, see how much to ask for in deposits and upfront payments.

This post is general information, not legal advice. Cancellation terms and enforceability differ by place and by contract, so have a qualified person review your clause before you rely on it.

Next step

Open your standard agreement and look for what happens when a client cancels. If it is silent, choose one of the three methods and write it in with the numbers stated. Then add the notice period and the due date, so the clause is ready for the next project you quote.