Terry, who is set to leave the Blues this summer, believes that the league champions now need to follow suit.
"Man City have already made one big signing. We need to act fast and I'm sure the club will," he said.
"You can't stand still in the transfer market. We have to keep improving year after year. Everyone needs to keep raising the bar. The manager stressed that himself."
"Champions League football can be the attraction for signing bigger and better players. This current squad is good enough to compete in all competitions at every level.
"But there are going to be more games next year so the squad needs improving and more strength in depth."