The goal in pricing a service is to mark up the labor and materials costs sufficiently to cover overhead expenses and generate sufficient profit. First-time business owners often fail without realizing that they have priced their services too low.
If your competition is underbidding you, think carefully before lowering your price. Can you reduce your overhead? Are your cost estimates accurate? Don't forgo your budgeted profit just to get a contract. A business that does not earn an adequate profit is more vulnerable to total failure because it does not have the cushion that good profits provide for absorbing costly mistakes.
Excerpted from Starting a Home-based Business