Hi there
I think what jumps out at me from your post is the time it is taking (and your own admission to being a perfectionist). If you can reduce your time, you will increase your "hourly rate". Does it need to take 4 hours?
Re the price, you need to look at your competitors, as this is what your clients/potentials are doing. £40 sounds towards the higher end of what people will pay I would have thought, but depends where you are and your typical customer.
What about if you offered to present them with a picture/canvass and then raise the price? I imagine that people might like to have the finished item delivered to them? A photographer I used gave us a printed pic in a frame before we'd ordered anything, I am guessing so we put it up straight away - we which did. It could be your customers don't get around to printing their pic, which in addition to being a shame, also means that their friends etc don't see it.
Re general marketing ideas (not that you were asking!)...but having looked at your site, I would find some boys and do a couple of freebies so you have some eg's. It is very girly at the mo, which is cutting you off from 50% of the market. I am guessing it does appeal to girls more than boys, but even so, with no eg's it is difficult for mum's of boys (like me!) to imagine what they would look like.
And could you use the growing "print your own card" market to tie in your promotions with seaons. Eg "Order a picture for your special Father's Day card", don't think you have done that. Put up a couple of eg's on your site.
Have you thought about Hen do's etc? I think your service could one that people don't realise they "need" until they see a picture which clicks with them.
Have you teamed up with a photographer? I know they offer a different sort of picture, but you could refer each other clients?
You can use Facebook to run competitons to drive up "likes". Maybe ask people to vote on their favourite princess/fairy etc and give away one of your pictures as a prize.
And as verity says there are lots of free/cheap places to advertise online. And things like the PTA fete or pre-school fairs will be fairly cheap I'd have thought.
Anyway, best of luck.
WS