How to break it to them that it costs money?
Straight up. Either quote them the hourly rate or a project rate. What ever you charge, don't be ashamed to ask for it. Time is money and people know that if they go somewhere else they will have to pay for the service there...so you asking to be paid is part of the business and normal.
Pricing... look around at other local studios and see what they are charging. Figure out where you fit into the quality/price vs the other locals. Set your price at the higher end of what you think your time and experience is worth in the local market. You can always come down in price to get a job but you can't go up on rates in the middle of a project.
I don't do much work for hire, and I have very little local studio competition around here..... I don't generally do walk in clients.... it's mostly on line when I do work for others. Word of mouth. We settle on the price for the project or the hourly rate or a per track rate up front. Recently, I did a song project.... just tracks for a client. It was a cost of the project deal. He was wanting to change this and that, then the key, and I had to write to him and tell him that his indecision needed to stop and we needed to get the project rolling. Time is money and it was being wasted on all the changes. I told him to pick a key, settle on a style and lets get this done..... the option was I was out unless he could find something he liked and we would go with it. Waaa Laaa.... he liked the style and the key, we finished the project and I sent him the song as MP3 with silence breaks...... for his approval. He liked it, paid me and I sent him the full wave.
Then..... 2 weeks later.... he came back wanting a key change on it. I told him it would cost the same as he had just paid and I could rework it in that new key..... he declined. I didn't really care. Thar's the great thing about running a studio as a hobby..... I don't have to accept the work and I don't worry when someone walks away.
Always write up a work for hire that specifies the money to be paid. Get signatures and only then start the work. If not, you'll get screwed. Get a deposit or down payment depending on the size of the project. Figure out based on the time you expect the project to take, when you have used that deposit. DO NOT keep working without getting another chunk of money. Always be working on their money (dime) or you will end up working on your time.
I've seen a number of folks here who tried running studios complain that they had spent 10 hours on a project, were paid for 3 hrs with the deposit (if they bothered to get one) and then the band/artist said he/she didn't like the way it was sounding and walked away..... leaving the studio on the hook for free studio time.
I put silence into all my mp3 test tracks..... every 10 seconds. That kept the customers from using the mp3 and walking out on paying for a finished product.
Just my 2 cents.....