How does a small artisan craftsman determine price to sell his product?

Sorry in advance for what may be an elementary thought or question, but it’s something that I’ve been wondering about for years with no direction.

A friend of mine owns his own instrument-making business. It is an extremely niche market (I would wager that the total amount of people currently making up the consumer market is less than 100 individuals). He faces what I view as a unique problem: many of his customers either cancel their orders with him, or go to one of his competitors, because he is unable to keep up with the high demand for his product, which is of the top quality.

What ends up happening is he promises delivery of his product within x number of months, meanwhile additional orders come in at his set price. Due to the timeline of production, number of incoming orders, and the artisan work involved, he ends up falling very short of delivery timeframes to the point of years. This results in unhappy customers going elsewhere.

This makes me think that he is underpricing his product. If he were to raise the price of his product, that would surely reduce the number of orders he receives, thus giving him a more clear idea of when he can realistically deliver.

Does this make sense? What is this concept I am thinking of? Is it simply supply and demand?