I simply explain that it is my livelyhood, and I cannot afford to stop making a living....however I will give them my best rate, which is about 20% off on the labor, and materials at cost.
Also, if I am discounting the work, I will not give price quotes. I will only work by the hour.(That leaves me no cushion if there are problems.) If people expect more of me than that, I think it's kind of selfish and unreasonable of them, so I don't worry about whether they are upset or not. I work hard for the money, and I already am underpriced compared to other shops, so....