I had the same problem back in the 1980s when I was tooling and lacing belts, buckles, and checkbook covers that I made at my home after working my regular job in west-central Oklahoma. I never did feel like I came up with a good way to price my work back then. I agree with Ryan that your location makes a difference in what rate you can charge. I was competing with the Department of Corrections, who were using leathercraft in their programs (still do, I think), plus, there were a large number of other leathercrafters in the area that were doing it part-time just like I was. It seemed like handmade leather items were for sale everywhere. A local Western Wear Store consigned my work, but very little of it ever sold. I priced the items and paid them a percentage. They told me that my prices were in line, and they seemed to like my work.
Now that I'm doing "repair your item" type of work in Southwestern Oklahoma using machines in our store, we have an hourly rate of $10/hr, plus a minimum of $5 per job. The wife has a few flat rate prices for common alterations on cloth garments and we sew patches on both cloth and leather for $3/patch ($6 for the big back patches) because it goes a long way with our local bikers and law enforcement folks, and brings in other business that we can get paid our regular rate. It's word-of-mouth advertising, and we think that's the best advertising you can get. We also have a set rate for setting (all types) snaps ($1), sewing on buttons (.50), and putting in button holes ($1). Otherwise, we quit quoting job prices after getting bit several times. Of course, doing repairs means that I seldom do the same thing twice, and trying to quote a job price is nearly impossible when I have no idea how long it's going to take until I get into it. When I tell the customer my hourly rate, the next question is usually "how long do you think it will take to do it?". LOL. I usually give them an estimated "range" that is so wide that it doesn't ever pin me down too much, and helps sort out the ones that don't want to pay for the services anyway, or helps them realize that it will cost more than the thing is worth and they can buy a new one cheaper. The ones that know how much it costs to have machines and keep a store aren't any problem. The ones that don't will just have to trust me. It costs money to operate a business.
Our hourly rate won't pay the bills by itself. It only supplements our retail sales and makes use of our time when no retail customers are in the store. If we had to depend solely on our labor rate for our income, we'd have to raise it to a level that we probably won't get here. That's partly why a lot of leather repair shops have closed down. Hard to make it on labor alone when replacements are so cheap. We're in an agricultural area that has a median income per household of about $22,000/yr. That works out to an average wage of about $10.50/hr, so we're close to being at the average labor rate in these parts. About 20% of the population is below poverty level. These figures are according to the latest census. If you're depending on the local population to buy your items/services, maybe you could look up your city/town census and use that data to help you set your rate?