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all the work you've done to this point, and all the referrals, are from people for whom you did inexpensive work. Friends of cheap people tend to also be cheap people; It'll take a little time to grow into a new set of clientele, who have different friends.
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Listen to the man. He knows what he's saying!
Every year as my rates go up some clients stick around and some vanish. They don't see the difference between me and the other guy and that's ok. If asked I explain why my prices went up, such as a close examination of overhead over the last winter, and tell them I hope they stick with me.
If the guys price was that good I'm sure you won't have to worry about competeing with him next year. However, there will be someone else wearing the same hat.