How can I set a fair early termination fee in my client contracts?

Here are a few common ways to structure an early termination fee:

• Be specific: Spell out exactly when the fee applies, how it's calculated, and when it's due. For example: "If the client cancels before [date], a fee equal to 30% of the remaining contract will apply."
  
• Keep it fair: Set the fee to line up with expected costs or lost income, rather than using it as a punishment. Most states require that cancellation fees or retained deposits be a reasonable estimate of actual losses — not an excessive penalty — to be enforceable.
• Add context: A short note explaining that the fee covers prep time or resources can make clients more understanding.
• Include timing: State when the fee is due after cancellation (for example, within seven days).

A clear, reasonable clause like this helps set expectations early — protecting your business while showing clients you're professional and transparent.

What to consider in your specific situation

While this general approach works for some small businesses, your exact wording may depend on:

• The type and length of your contract.
• How your pricing or services are structured.
• The laws or contract rules in your state.
• Any previous agreements or amendments.
• How much work or cost you've already invested.

Since every business is different, you can use Rocket Copilot to get legal information about early termination fees, or connect with a Legal Pro to learn more about your options.