Kill Fee Clause for an AI Project: What to Write
A kill fee protects you when a client cancels an AI project part way. What the clause should say and how to size it.
A kill fee clause is a line in your contract that says what the client owes you if they cancel an AI project before it is finished. It exists because AI projects can stop abruptly, when a client changes direction, loses budget or simply goes silent, and you will already have spent time on discovery, prompts and a half-built system. A good clause converts that uncertainty into a number agreed on day one.
This is general business guidance, not legal advice. Have a lawyer in your jurisdiction review any contract you rely on.
Kill fee, deposit and milestone are three different things
People mix these up, and the confusion causes disputes.
Term | What it is | When it is paid |
|---|---|---|
Deposit | Money up front that secures your time | Before work starts |
A scheduled payment for a delivered stage | When the stage is accepted | |
Kill fee | Compensation for stopping early | Only if the client cancels |
A deposit can be part of a kill fee, but they are not the same clause. If your contract only has a deposit, a client who cancels at week five has no stated obligation beyond it.
What the clause should say
Keep it short and unambiguous. Cover these points:
Who can trigger it. Cancellation by the client without cause. Cancellation because you breached the contract should not pay you a kill fee, and the clause should say so.
The amount or formula. A fixed sum, or a percentage of the unpaid balance, tied to the stage reached.
Payment due date. For example within 14 days of written notice.
What the client gets. Completed work product as of the cancellation date, delivered once the fee is paid.
What you keep. Any amounts already paid are not refunded, and ownership of unpaid work stays with you until payment.
How notice is given. In writing, so the date is not in dispute.
Sizing the fee with a worked schedule
Say the project is quoted at 6,000 and split into four stages. A schedule that reflects work already done and work already reserved might look like this:
Stage reached at cancellation | Fee owed |
|---|---|
Before discovery is finished | Deposit only, kept by you |
Discovery done, build not started | 25% of the total, deposit credited |
Build under way | 60% of the total, minus amounts paid |
Build done, in review | 90% of the total, minus amounts paid |
These percentages are examples to show the shape, not a standard. Set yours by what each stage costs you, including the work you turned down while the calendar was booked. The later the cancellation, the closer the fee gets to the full price.
Wording traps
"Reasonable fee" with no number. This invites argument. State the amount or formula.
No definition of cancellation. Decide whether a client who goes silent for a set period counts. A clause saying that 30 days without a response after a written reminder is treated as cancellation saves you a hard conversation. See what to do when a client stops replying.
Ignoring scope changes. If the scope grows, the fee base should grow with it, which is the job of a change order.
Hiding it. Put the clause in the main agreement, not a footnote, and mention it when you present the proposal.
Where it fits in your paperwork
The kill fee belongs next to your payment terms in the same document as the project proposal. If a relationship has to end for other reasons, the process in how to fire a client on an AI project covers the exit. For the wider picture of earning from AI work, see AI monetization strategies.
Frequently asked questions
What is a kill fee?
A kill fee is a payment owed to a freelancer or agency if a client cancels a project before it is complete. It compensates for work done and capacity reserved.
How much should a kill fee be?
It depends on how far the project has progressed and what you have already spent. Many people tie it to project stages, with a larger share owed the later the cancellation happens.
Is a kill fee the same as a deposit?
No. A deposit is paid before work starts. A kill fee is owed only if the client cancels. A deposit can be credited against it.
Do I owe the client anything if I cancel?
Check your contract. A kill fee normally covers cancellation by the client, so cancellation by you is treated under the breach and termination terms.
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About the author
Growth & SEO Lead
Manuele covers distribution: SEO, content strategy, and how AI-built products find their first thousand users. He tests everything he recommends.
