Last week I purchased a magazine (while I was passing through Atlanta Airport on route to Heathrow) which had an interesting article about prices, and it went something like this:-
Research was carried out on a number of people that required work done on their property. Each property owner was asked to get four estimates for the job they required to be completed. After this exercise was carried out it was found that about 80% of the property owners had selected one of the two highest quotes, about 15% had gone for the lowest quote, and about 5% had gone for the next to lowest quote. (Almost a perfect 80/20 ratio). It was also noted that the people that picked the lowest quotes did so because the low priced quote was more than 25% below the top two highest priced quotes.
Also, I am in the process of reading a book about the Psychology of Pricing. In it, it states that people that are put into a Brain Scanner and then shown bottles of wine with different prices. Although the wine in all the bottles was exactly the same, people became very much more excited about the wine when the price was higher, believing that the more expensive was of far better quality.
In both these examples it shows that the majority of people do not wish to purchase the cheapest option. In fact, the vast majority of people want the more expensive options, because they believe it to be better quality.
This shows that if you are keeping your prices as low as possible to get new business, you will in fact get less business than if you had higher prices and made more profit.
It seems that the high price that 85% of people prefer is about 25% higher than the low price. So if a low price is £25 per hour, the more acceptable price will be £31.25 per hour.