T.C.
I would highly recommend keeping your children where they are. They are well-adjusted to the situation, you know her well, they are safe. Children need the stability of as few caregivers as possible. Switching caregivers often leads to attachment disorders in children. It isn't just about the money (I am sure you know this and would agree.). Yes, it would be great for them to be in their own home, but they are already established where they are.
If you do decide to change to a stranger in your home, then the transition will be difficult. I think you should be honest with your friend, but gentle. I think most people would understand. Tell her that the new price increase is understandable. She wants more money for her time. You totally get that. However, for that same price, you found that you can have an in-home Nanny. You think the benefits would be better for the children, or whatever your personal reasons are. Tell her you love her, etc. Be sincere. I also would give her as much notice as possible. I'm sure they are relying on the income she receives from you to make ends meet. She will need to either adjust her budget or find someone else to watch. The more time she has the better she will be able to cope and not have a personal hardship. Perhaps she is upping the price so that you will find someone else, but she just doesn't know how to tell you. LOL You never know!