A kill fee is compensation a client owes if a contract is cancelled through no fault of the consultant. It differs from a refund, which applies when the consultant fails to deliver the agreed-upon work. A kill fee helps to recoup costs for blocked calendar time you can't resell and work already done. While there is no set industry standard rate, most consultants multiply their weekly fee by the number of weeks it takes to replace a project, and cap it at the remaining contract value.
Before you sign your first consulting or freelance client, there are plenty of t's to cross and i's to dot. Most of the admin revolves around cash flow and getting paid, preferably on time.
These include legally binding contracts, writing a statement of work, out-of-scope processes, a late-payment sequence, and scripts for deposits and rate increases.
But one of the most overlooked? A kill fee clause.
What is a kill fee?
A kill fee protects your income if a client cancels a project. If a client changes their mind and you've already blocked time on your calendar or started work, you can recoup capacity costs.
It gives you the financial runway and stability to find another project without dipping into savings or stressing about making ends meet.
Why do consultants need a kill fee clause?
Without a kill fee clause, consultants expose their business to serious financial risk on each project. Cancellations can happen out of the blue, whether because of internal politics or budget cuts, and usually have nothing to do with the work output.
Because your business model relies on selling time, if you turn down another opportunity because you didn't have capacity and a client cancels a week in, you need to recover what you've lost: your time.
Let's look at an example.
You've signed a $24,000 project and each week is worth $3,000. If it takes you four weeks to find and start working with a replacement, the cancellation has cost your business $12,000.
Without a kill fee clause, you absorb the cost. By adding the clause to your contracts, you can prevent potential cash flow problems and ensure you're compensated fairly, no matter what curveball comes your way.
How do you calculate a kill fee?
There's no industry standard for a consulting kill fee. The best approach is to use your numbers and arrive at an estimate that covers your costs.
- Your weekly fee: Divide the project by its length in weeks. A $24,000 project over eight weeks is $3,000 per week.
- Your refill time: Look at your historical data and calculate roughly how long it took you to book a project from the first conversation to the first billable day. E.g. four weeks.
Once you have these two numbers, you can run the following calculation:
Refill time (four weeks) x weekly fee ($3,000) = $12,000
Then calculate the remaining value of the contract. If an 8-week project was cancelled in week three, five weeks remain. You'll then multiply your weekly fee by the time left.
$3,000 x 5 = $15,000
Lastly, you'll apply the cap, which is the lower of the two figures. In this example, it would be $12,000, so that's your kill fee.
Once fewer than four weeks remain, the remaining contract value becomes the lower number, so it becomes the cap:
| Cancelled at end of | Remaining value | Kill fee |
|---|---|---|
| Week 3 | $15,000 | $12,000 |
| Week 4 | $12,000 | $12,000 |
| Week 5 | $9,000 | $9,000 |
| Week 6 | $6,000 | $6,000 |
| Week 7 | $3,000 | $3,000 |
How do kill fees work on retainers and hourly work?
For a retainer, most contracts include a cancellation clause. Once the client gives notice (usually 30 or 60 days), the retainer remains active and billable until the period is over.
However, if a client abruptly terminates a long-term retainer without following the notice period, a kill fee should kick in. It's usually a percentage of the remaining retainer or a flat break fee to compensate for your lost capacity.
For hourly work, a kill fee functions differently. If you have already logged hours, a client has to pay you for those hours up until the cancellation. However, if a client has bought a block of your time, like 40 hours in a month, a kill fee or cancellation policy dictates what happens to the unused hours.
For example, your contract could state that if a client cancels mid-month, you retain a percentage of the unworked hours as a kill fee for blocked-out calendar time.
If you gave the client an hourly estimate for a project like 40 hours, a kill fee is structured as a percentage of the remaining budget or a tiered fee based on the production phase. For example, 25% if killed early, 50% mid-production and 100% if completed.
What should a kill fee clause say?
There are five things you'll want to include in your kill fee clause to make sure all your bases are covered.
- The trigger condition: The client ending the engagement for any reason other than your material breach.
- Pause rule: Any project put "on hold" for more than 14 days becomes cancelled unless there is an agreement in writing with a restart date. A pause rule protects you from a client avoiding a kill fee by never formally cancelling the work.
- Fees: An explanation detailing how the kill fee is calculated, whether it's a fixed amount or based on a tier.
- What completed work means: Detail how work is measured (milestones, hours logged, etc.) and that it's owed on top of the kill fee.
- Payment deadline: State when payment is due after a cancellation. For example, within 14 working days. After that, detail your process for late-paying clients.
Good to know: If you're signing a client's contract, search for "termination for convenience".
What does a kill fee look like on a real project?
Let's say you sign a $24,000 fixed fee project for eight weeks. You collect a 30% deposit of $7,200, and at the end of week three, the client cancels.
Here's what the different kill fees can look like depending on the approach you choose:
| Clause | Kill fee | Total owed | Invoice after deposit |
|---|---|---|---|
| No kill fee | $0 | $9,000 | $1,800 |
| Tiered (20% of the remaining $15,000) | $3,000 | $12,000 | $4,800 |
| Flat (25% of $24,000) | $6,000 | $15,000 | $7,800 |
| Refill time (3 weeks × $3,000) | $9,000 | $18,000 | $10,800 |
If the cancellation happened at the end of week seven, the flat kill fee would still charge the client $6,000 even though there is only $3,000 left on the contract. Meanwhile, the refill clause would cap it at $3,000 and is fair to both parties.
What to do before your next freelance project
Cancellation disputes usually get ugly for the same reason: there is no clause and no agreed number to negotiate from.
Before your next project kicks off, add the following to your to-do list:
- Review your contract clauses: Do you need to add a kill fee clause? What does your cancellation clause say? Do you have current contracts that need to be updated on the next renewal?
- Check your business health: Kiaro has a free tool that checks your pipeline, pricing, cash flow, positioning, and admin.
Besides protecting your time with a kill fee, regularly reviewing everything else that makes your business work will further protect your income and help you create a sustainable long-term business.
Frequently asked questions
What should you do within the first 48 hours of a client cancelling?
Make sure you have the cancellation in writing with an effective date. Then, send two invoices: one for the completed work and one for the kill fee. Include the clause number in your contract on the second invoice. Hold any final files until both are paid.
Will a kill fee hold up if a client refuses to pay?
A signed clause with a clear and defined trigger gives you a firm basis to invoice and chase the fee like any other invoice. A fee that's reasonable and based on your refill time, rather than one that looks like a punishment, is much easier to defend. Whether it holds up depends on your contract and jurisdiction, so speak to a lawyer if a client disputes it.
Is a kill fee the same thing as a cancellation fee?
Yes, in the sense that the clause works the same way in both cases. For example, you can have a cancellation fee for projects cancelled before work begins and a kill fee for those cancelled after.