The email usually arrives near a quarter end. Rising costs, rising salaries, a new rate card from next month, blended rate moving from $55 to $65 an hour. You are four months into a build, the team knows your codebase, and switching agencies now would cost more than the increase. The agency knows that too.
An agency raising its rates is not automatically bad faith. Developer salaries do rise, and a shop that never adjusts ends up losing its best people, who are the people working on your product. But a mid-project increase is a negotiation, not a notice, and most founders treat it as the second. Here is how I work through it with clients.
First, read what your contract actually says
Before you reply, find the rate clause. There are usually three possibilities.
The rate is fixed for the term
Some contracts lock the rate for the length of the SOW or for 12 months. If yours does, the increase does not apply until that period ends, and you can say so politely. Many founders pay the new rate simply because nobody checked.
The agency can change rates with notice
Common wording lets the agency adjust rates with 30, 60, or 90 days written notice. That is enforceable, but notice periods are your window. Use them to plan, not to hope the email was a mistake.
The contract says nothing
Then the new rate is a proposal, and the old rate stands until you agree to something else. In practice the agency can still walk away at the end of the current SOW, so silence does not give you unlimited leverage. It gives you a real negotiation.
If you are about to sign a new contract, this is one of the clauses worth fixing up front. I list it alongside the others in the SOW clauses that cost you six months later.
Work out what the increase really costs
A jump from $55 to $65 sounds like $10. On a team billing 480 hours a month, it is $4,800 a month, or about $57,600 over a year. That is a meaningful slice of a seed round, and it should be weighed like any other spending decision.
Then check what the increase is attached to. Ask three plain questions:
- Is it the same people at a higher price, or are they changing who is on your project?
- Is the increase across all roles, or concentrated in senior roles you use heavily?
- What is their current rate for new clients? If new clients pay less than the new rate you are being quoted, the increase is about leverage, not cost.
The first question matters more than it looks. A rate increase is sometimes paired with a quiet swap of senior people for juniors "to keep your costs stable." That trade is the pattern in the senior team that pitched you isn't building your product.
The options you actually have
Founders tend to see two choices, accept or fire the agency. There are at least five.
Accept it, with a lock
If the increase is reasonable and the team is good, accept it in exchange for a rate lock of 12 months. You pay more now, and you remove the chance of another increase before your next raise.
Phase it in
Ask for half the increase now and half in six months, or for the new rate to start at the next SOW rather than mid-project. Agencies often accept this, because what they want is the new rate on the books, not the cash this month.
Trade rate for volume or term
If you can commit to a longer term or steady hours, you can often hold the old rate or land between the two. Only do this if you would have committed anyway. Do not buy a year of lock-in to save a few thousand dollars.
Change the team shape
Sometimes the answer is fewer, more senior hours. If you are paying for a four-person team where two people do most of the work, the increase is a good moment to right-size. The approach I use for trimming agency spend without firing anyone is in how to cut your agency bill.
Start the exit plan
If the increase is large, unexplained, or the latest of several, it is a signal about where the relationship is going. You do not have to leave now. You do need to make leaving possible: code in your repo, credentials in your name, documentation current, a handover plan drafted. Once those are true, your negotiating position changes, whether or not you ever use it.
How to reply without burning the relationship
Keep the reply short and specific. Something like this works:
Thanks for the notice. Before we agree, can you confirm the team on our project stays the same, what the rate is for new clients, and whether you would lock the new rate for 12 months? We would also like the change to start with the next SOW rather than mid-milestone.
That reply does not accuse anyone. It shows you read the contract, and it moves the conversation from a notice to terms. Most agencies will meet you somewhere in the middle, because replacing a client costs them more than a slightly smaller increase does.
An illustrative example
A founder I will describe as a composite had a six-person offshore team at a blended $48 an hour, around $46,000 a month. The agency announced a move to $56 with 30 days notice, adding about $7,700 a month.
Looking at the work, two of the six people were logging most of their hours on QA and maintenance that had grown without anyone deciding it should. The founder accepted $54, locked for 12 months, and cut the team to five by moving routine QA to an automated test suite the agency built in the first month. Net spend ended up close to where it had started, and the team was the same people minus one role nobody missed.
The numbers are illustrative. The pattern is common: a rate increase is often the first time anyone looks hard at the shape of the team.
When to get a second opinion
If you cannot tell whether the new rate is fair for the skills you are getting, or whether the team is the right size for the work, get a short outside read before you reply. That is exactly the kind of question a one-time technical teardown answers. If you want to talk it through, book a call.
FAQ
Is a 10 to 15 percent annual increase normal for dev agencies?
Increases in that range are common when salaries in the agency's market are rising, but "normal" is not the same as "fine for you." Compare it with their rate for new clients and with the value you are getting.
Can I refuse a rate increase?
If your contract fixes the rate, yes, until the fixed period ends. If it allows changes with notice, you can still negotiate the timing and terms, but the agency can decline to continue on the old rate.
Should I ask for a rate lock in my first contract?
Yes. A 12-month lock or a cap on annual increases costs little to ask for at signing, when your leverage is highest.
Does a rate increase mean I should switch agencies?
Not by itself. Switching mid-build is expensive. Treat a large or repeated increase as the trigger to make switching possible, then decide calmly.