You have a client whose price has not moved in two years. Your costs went up, their environment grew, and you want to raise your monthly rate. Can you do that in the middle of a contract term? And if you do, are you handing them a reason to leave?
Yes, if the agreement says so. The agreements we write let you raise your fees in the middle of the term. Once an increase passes 10 percent of the monthly rate in a year, the client gets notice, and they have 30 days to cancel without a penalty. Your agreement may say something different, or nothing at all, and that is the catch.
We had a client a few years ago that quoted one of its customers managed services as a flat monthly fee, with no "up to" count of devices in the quote. Over the course of the next three years, the number of devices under management roughly doubled, and the fee rose by more than half along with them. The owner of that customer knew exactly why the bill had grown and was happy to pay it.
Then that owner retired. The person who took over the customer's business read the contract himself. As he read it, the MSP had quoted a flat fee and had never told him it had the right to change the pricing. So, as he saw it, the MSP was stuck with the original number for good.
We pointed him to the provision in the agreement that lets the MSP raise its fees at any time, by any amount, with notice and a penalty-free exit for the client above 10 percent in a year. The argument ended there. The price had never been locked. It only looked locked to a person who had read the quote and not the agreement behind it.
In this article we cover the different types of price increases, how to give the right kind of notice, and how to make sure your agreement lets you charge what you are worth, even in the middle of a term. The outcome you want is the increase, kept, and the client still on the books.
What counts as a price increase, and what does not
First, what an increase actually is. A price increase is you raising your rate for the managed services you already provide to that client, a higher rate on the invoice for the same work. Then what is not a price increase: a vendor raising its price to you, or you adding devices under management. Both of those make the bill go up too, and from where the client sits, all three look exactly alike.
Take the vendor first. When Microsoft moves its licensing rates, that cost passes through to the client. It is Microsoft's increase, and a well-built agreement treats it that way. Growth is the second. More users, more devices, a new service line added mid-term. That is the quantity moving under a rate that has not changed.
I will come back to both. For now, hold them apart from your rate. A vendor's increase never counts toward the 10 percent rule your agreement should carry; growth has its own mechanism, covered below.
Your rate is the price you charge for the work. A vendor's price is what your supplier charges you. The quantity is how much of the client's environment you manage. Only the first one is a price increase.
The rule your agreement should carry
The agreements we write let you raise your fees at any time during the term, by any amount, with one rule attached above 10 percent in a year. The threshold is measured against the monthly rate, and it is counted over a year: raise a client's monthly rate by more than 10 percent within any year, and the rule kicks in. If your agreement uses a different number, or none, substitute yours as you read. The mechanics are the same; the threshold is the dial we set. In the agreements we write, you can raise their rates 100 percent if you want. But if you're going to raise it more than 10 percent, you have to give them notice, and then they have 30 days to cancel without a penalty.
Under those terms, you could still increase them up to 10 percent without even giving them notice. Over the threshold, the client gets at least 30 days' notice before the new fee takes effect. It also gets a 30-day window to cancel that order, meaning the services bought under that quote, without the charges it would otherwise owe for leaving early.
Both windows are negotiable. If a client asks for 60 days instead of 30, that is no problem. The payment terms that sit beside this right are covered in the foundational terms of an MSP agreement.
The exit is what makes the right defensible. Price stays a lever you control for the whole term, and in exchange the client gets an honest way out if you move it hard. Neither side is being asked to sign something one-sided.
The right is a term in your agreement, not a rule of law. It exists because your agreement grants it, and an agreement written to cap or forbid increases does exactly that. Read yours before you send anything.
For price increases of less than 10% of the monthly rate
Under our threshold, the agreement does not make you say anything, so a routine annual increase can simply take effect. I would still tell them. You don't want them to be surprised by it when it happens. And you can still give them the notice if you want even if it's under 10 percent, which the agreement allows without requiring.
Where you tell them matters more than whether you tell them. An MSP we work with asked whether a new quote has to go out with every annual increase. You can, but you don't have to, if you don't want to. You could just put in their invoice, hey, on your anniversary date, we're raising you 5 percent.
Never write the number into the quote. If you want to say that you have an automatic 5 percent increase, don't put it in your quotes, because then it's a contract. Put it in your invoices. Anything you put on your invoice is just informational and it doesn't make a contract.
The reason is the order of precedence inside the agreement itself. The quote is part of the contract, and when the quote conflicts with the master agreement, the quote controls.
Suppose you write in the quote that you're not going to raise them more than 5 percent in a year. That line overrides the section in the master that lets you raise them. You have capped yourself for that client's whole term. Put the same sentence on the invoice instead, so that way it doesn't create a restriction on what the agreement says.
There is a way to set expectations without capping yourself, and it is the same invoice. Some of our clients like to put a line at the bottom where it just says historically we have raised our rates 5 percent a year, or something like that. Nobody is surprised when it happens, and nothing in the quote restricts what the agreement already lets you do.
The quote is part of the contract and the invoice is not. Put what you may do in the agreement, and put what you plan to do on the invoice.
For price increases of more than 10% of the monthly rate
Above our threshold, 10 percent of the monthly rate in a year, send the client written notice of the new fee. It goes out before the fee takes effect, at least 30 days ahead in our agreements, and then you let their window to cancel run. That exit is the price of the right.
The case that brings this up is the client who is taking far more of your time than the price assumed. Some MSPs handle that client with a fair use statement, a line that says the price assumes the client uses no more than its fair share. I don't like them, because a fair use standard is too ambiguous to apply, and a clear right to raise rates does the same work in the open.
Say your invoice has carried the line, traditionally we raise clients' rates 3.5 percent a year. Then at the end of the year you need to raise that client 15 percent to account for the fact that they're not using your services fairly and as you expected.
You can, and they can't say, you told me contractually in the quote that you weren't going to raise me more than 3.5 percent. Because 15 percent is over the threshold, they get the notice and the 30 days to cancel without a penalty.
The fear is that an increase over 10 percent sends the client out the door. Not necessarily. A client whose usage outgrew the price can see that too, and we have seen those clients take the increase and stay.
A related instinct comes up when a client pays slowly and you want leverage. Don't raise their interest rate. That rate is a term of the signed agreement, and changing it takes their signature. Raise the service fee instead, with notice. Just say, hey, our rates are going up.
A few more questions that come up
I said I would come back to vendor increases and growth. Those two, and the multi-year discount, are the questions that come up alongside the rule, and the same mechanics answer all three.
My client took a three-year deal at a discount. Can I still raise them?
Yes. An MSP we work with put it this way. He floats a customer a one-year deal at rack rate and a three-year deal at 10 percent off. At the end of year one he wants to raise his rates. They just came in at a lower floor, and he had it right.
You can increase them 30 percent if you wanted. But if you did, you'd have to give them notice and an opportunity to cancel in the three-year term without a penalty. A multi-year discount is a lower floor, not a price freeze, and the longer term is just delaying an increase.
If a client on a stepped multi-year quote leaves early, the steps and the discount interact with the early termination fee.
In general, the recoverability of the discounts, your right to claw them back, expires at the end of the initial term in which the discounts were offered. So an increase at renewal really shouldn't affect the recoverability of early discounts in an early termination scenario. How that fee is built is its own subject, and the master services agreement guide is the place to start.
Microsoft raised its prices. Does that count?
No. A vendor's increase is the vendor's. In the agreements we write, incremental third-party service fees are a reimbursable expense, not a service fee. The client pays those costs back to you as they come, and because they sit outside your rate, your 10 percent does not include them.
We learned why that matters in a dispute. An MSP we work with passed a Microsoft increase through, and the client treated it as a fee increase and used that section to cancel without a penalty. The agreement still protected the MSP, because a client that cancels still has to pay all the third-party service fees. That experience is one of the reasons those fees sit outside the service fee.
Pass the increase through, and tell clients ahead of time that vendor increases flow through. A line that says, when our vendors raise their rates we will make the corresponding adjustments, does the job. You can say that if you want, but I still like putting that informational stuff in invoices rather than in the quotes, for the same reason as the annual increase.
The client added twenty seats. Is that an increase?
No. Growth is a different mechanism. In the managed services attachment we write, if users, devices, or covered services exceed what was ordered during the term, you may adjust the total fees. The ordered quantity is the floor.
This is where the quote does real work, and it is the lesson of the flat-fee story. I love an "up to" in a quote, managed services for up to 30 seats, say, reviewed at the quarterly business review.
That fight started because the quote didn't say for up to whatever machines. It just said a number a month, and when the device count doubled, the person who took over read the higher bill as a price increase nobody had agreed to.
Some clients think that you have to immediately, without them asking, adjust the bill based on their perceived usage, not their actual usage. They also think that any billing error that comes from them not telling you what was happening is on you. We try to have language in the agreements that protects you in all of those situations, and an "up to" count in the quote is where that protection starts.
When the client pushes back, or your agreement never said so
All of that assumes your agreement carries the right and the client signed it. Two situations break that assumption, and the answer in both is a signed quote.
The first is a larger client, with its own counsel, that reads an open-ended increase right and objects. Seen from the client's side, a right to change the price at any point is a lot to sign.
The compromise is to carve out the three increases you actually need: the usual annual percentage, vendor increases, and changes in quantities or services. Anything beyond those becomes mutual, meaning the client has to agree to it. That goes in the client's quote, where it amends the agreement for that one client. It is the one place where writing price terms into a quote is the right call, because you are doing it on purpose.
The second is the MSP whose current agreements never said any of this, or whose older clients are on handshake terms. It wants to move them onto terms that do.
One thing I don't recommend is trying to upgrade them by letter, by invoice. A price change like this is a CPQ thing, a job for your quoting tool. It needs to come as a quote, order, or proposal with an electronic signature that incorporates by reference the current terms and conditions. The invoice can tell a client about an increase the agreement already permits. It cannot create the right.
The increase itself is the occasion to send that quote. Around the time of a big vendor licensing change a few years ago, lots of the MSPs we work with used the new vendor prices to push new quotes to all of their customers with a price increase and the new agreements.
That sort of reworking of pricing or reworking of packaging can be an effective approach. A new quote for hardware, a project, or added licensing does the same job in a practice where clients buy those things all year.
You're probably going to need to segment your customers and understand when they're coming up for renewal. Focus on a good rhythm that works with the renewals in front of you. Then expand backwards from there with the same strategy into the clients you want on current terms.
When that quote goes out, sending it does not restart the client's term by itself. The clock only starts over if you say it in the new quote, so whether the term resets is your call.
What to check in your agreement before your next increase
Across the agreements our attorneys maintain for 1,200+ MSPs, these are the places to look before the next increase goes out.
A mid-term increase right Does the agreement let you raise fees during the term at all, by any amount, with notice and a penalty-free exit attached above 10 percent in a year? If it is silent, the next increase needs a signed quote, order, or proposal that carries current terms, because a letter or an invoice will not change what the client agreed to.
The notice and the exit above the threshold Find the threshold at which notice kicks in (10 percent of the monthly rate in a year, in the agreements we write), how many days of notice you owe, and how long the client has to cancel without penalty. In the agreements we write it is 10 percent in a year, at least 30 days' notice, and 30 days to cancel that order.
Anything in a quote that caps or fixes the price Look for a flat fee with no "up to," a line that says rates are guaranteed for the term, or a fixed annual escalator written into the quote. The quote controls over the master agreement, so a line like that caps you for that client's term.
Third-party fees as a reimbursable expense Vendor increases should pass through outside the service fee, so they do not count toward your threshold.
"Up to" quantities in the quote The ordered quantity is the floor. Growth past it is an adjustment to total fees, and a quote that names the count is what keeps the next decision-maker from reading growth as a rate increase.
Clients on old agreements or handshake terms Those accounts need a signed quote with the current terms before the next increase. The increase is the occasion to send it.
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- The agreements we write let you raise fees at any time, by any amount; above 10 percent of the monthly rate in a year the client gets notice and a penalty-free exit. Check what yours says.
- Tell clients on the invoice. A cap or an escalator written into a quote becomes the contract and overrides the agreement's broader right.
- Vendor pass-throughs and growth in users or devices are not rate increases, and each has its own mechanism.
The person who took over in that first story had no case, because the price was never locked. The only question was whether the agreement said so, and it did. Find out whether yours does before your next increase.