We have found that when we raised our ticket prices, even by a few dollars, it had an effect on attendance, so that is a risky option.

Non-folk club audiences can spend $40 for a ticket, and another $30 or $40 on drinks for an evening's entertainment without thinking anything of it. Folk audiences, on the other hand, can be bitter that the event isn't free...and that's why the other musical genre's dominate.

Both valid points although that arguement does lead to undercharging in the folk scene and an external perception that the events cannot be of much value because they are so cheap. When running a club I pushed up door prices for guest nights which prompted some complaints but overall produced an image of a venue putting on worthwile performers and thus attracted more non folkies in the audience. The key was marketing - I sought out free events listings outside of the folk scene and put the majority of effort on pushing the club there.

I don't know anything about the demographic or geography that the op is working in but would guess that the problem boils down to some combination of:

1. Insufficient financial planning
2. Over optimistic booking
3. Failure to market to new audiences