How to get your product pricing right, according to an early-stage founder

Pricing is one of the hardest calls a founder has to make. Get it wrong, and you’re either leaving money on the table or pricing yourself out of the market entirely. 

However, while there’s no magic formula to getting it right, there is a lot to learn from founders who have been through the trial and error firsthand.

To help you avoid potentially costly mistakes, we sat down with Ed van der Lande, founder of baby food brand More Toddler Meals, to unpack how he arrived at his pricing strategy.

From early competitor research and blind taste-test surveys, through to negotiating margins with retailers like Ocado: here’s what he told us.

Product validation and finding your first price point

Aaron: When it came to pricing your product, where did you start?

“I started with a bit of competitor research – I basically did a bit of a brain dump of every other sort of baby and toddler food product out there and worked out what their price was. That helped me understand what the market rates are. 

However, although this was helpful in some respects (you get a good understanding of what the competitive landscape is), it wasn’t all relevant. I think there is a danger in terms of being too fixated on what your competitors are doing, because everyone’s on a different process, and you don’t know what’s going on behind the wheel.”

Aaron: Why did you start there? Was it intentional, or out of necessity?

Ed: “I came up with the idea [for More Toddler Meals] when I was sat in an ISO container in Somalia. I had quite a lot of time just to conduct research, rather than do anything practical. So it’s only when I sort of got back to the UK that I then started doing the practical bits.

 I think even before thinking about pricing, the most important thing is validating the assumption that anyone cares about your product, or that you’re actually solving a particular pain point for a customer. 

So, I did a high street day on Kingston High Street. The price we were selling our products at was not what we’re selling at now – in fact, it was quite a lot cheaper. 

But it was trying to ask the questions: ‘is anyone actually going to buy this?’ and ‘do they get the concept of adding water into a meal to create a nutritious meal for your little one?’ That was the question we had to ask and get answered. So, once we validated that, then I started to think a bit more about pricing.”

I deliberately didn’t want family and friends to try it, because I think you don’t get honest feedback. The public will be pretty brutal with their feedback sometimes, which is super helpful because that’s what you need.

Ed van der Lande Founder of More Toddler Meals

Aaron: After validating that people did care, how did you work out the true cost of making one unit of product?

Ed: “Quite a lot of good online free tools that kind of gave me information about how to price a product. So I was looking at that, putting it into a pie chart, and going from there.

When we first started, I was manufacturing from home, which meant it was quite difficult to figure out an exact cost of goods. I was able to work out how much I was paying to get my raw ingredients in, but then trying to calculate electricity costs wasn’t easy – freeze drying is very energy-intensive, and it was just on my meter at home, so I was paying that anyway. 

Once we got a manufacturer on board, then it was a lot more obvious.” 

Aaron: If you did that initial part of the price-refining process again, is there anything you’d do differently?

Ed: “I think I was probably a little bit optimistic, forgetting some of those little costs that come in… like cardboard boxes, fuel for paying the courier. I hadn’t baked some of that in, which just chipped away at margin.” 

What people say they’ll pay us [and] what they’ll actually pay for are two different things. But I think having that feedback is so helpful, as well as just standing on a wet Sunday afternoon at a market store.”

Aaron: And what wouldn’t you do differently?

Ed: “I sent out new products we had to taste testers; I asked them how much they’d pay for it. They were quite low. So then I thought, ‘okay, the product quality isn’t there for the price’, and how to make the quality even better. 

What people say they’ll pay us [and] what they’ll actually pay for are two different things. But I think having that feedback is so helpful, as well as just standing on a wet Sunday afternoon at a market store.”

Aaron: What happened when you got a clear picture of your cost of goods and production?

Ed: “I figured that the cost of goods was way too high. I would have to sell [the product] at £5.95 or something similar, which I instinctively knew was a bit high. 

So then I said, well, what is the upper limit? For us, it was £4.50. It gave me some margin, but I also had a path to get the cost of goods down, so I knew margin would open up. 

I was conscious about constantly increasing the price. I think that’s pretty terminal. So I started high, and then cut down. I think that’s a much better message to customers than “yeah, I’m sorry, probably have to increase again, and again, and again”. 

If you start high, that gives you room to do promotions and bundle offers and everything else you can do, if you’re selling direct to consumer at least.

But when we got Ocado on board, they said they were going to sell it at £3.95. So £3.95 became the selling price. It wasn’t terminal, but it then really forced me to think about margin.”

 Retailer negotiations, and the reality of rising costs

Aaron: When a retailer tells you the price they’ll resell at – is there room to negotiate?

Ed: “The retailer dictates the selling price. It’s down to them… Where there is room for negotiation, though, is the margin that they would take. 

Within a food business, broadly speaking, I think anywhere between 35-45% is a standard retailer margin, give or take. So there’s a bit of flex for negotiation in there. 

If you can’t negotiate on margin, you can negotiate on payment terms, which I think is fairly critical for a small business. 

Minimum order quantities are another aspect of a negotiation, because for retail they want smaller [quantities], for a new product that’s risky, is unproven, and a smaller MOQ [Minimum Order Quantity] is less risky for them.”

Aaron: Considering how financially perilous it is to be running an early-stage business, has it been difficult to resist price increases?

Ed: “The challenge now for me, with energy costs rocketing up, our cost of goods going up, is what do I do to my end price? 

The option I’m looking at is being more creative with it, and how I can change my formulation whilst maintaining quality…we’re in this really fragile early stage, if you start messing around with pricing – if it’s got a four in it, it feels too much, so three feels okay. 

Being hit with cost price increases has forced me to think through things. It’s unlocked a load of stuff for us, which is helpful… I’ve got to just think harder about the problem rather than just go for the easy option in the short term: increase price.”

Being hit with cost price increases has forced me to think through things. It’s unlocked a load of stuff for us, which is helpful… I’ve got to just think harder about the problem rather than just go for the easy option in the short term: increase price.

Ed van der Lande Founder of More Toddler Meals

From gut instinct to data: getting smart about bundles and discounts

Aaron: How did you decide on your bundle sizes and subscription discounts?

Ed: “You’ve got to look at what your contribution margin is going to be, and then work out how much you’re willing to pay for a customer, what the lifetime value is. 

I just did what seemed reasonable for somebody to incentivise them to order more. I just want to sell more stock. So I went with 10% off for three meals, 15% off for six and then 20% off for nine meals. 

I’ve got data from Meta ads in terms of how much I’m paying for a customer, and I can figure out the pricing from there. From that, I’ll know the maximum amount I can pay for a customer, and work out what the impact is to the bottom line after that. 

So now we’re being a bit more scientific about it, and now we’ve got the data to inform what we’re going to do next.”

Aaron: Is there value in keeping things simple for the customer?

Ed: “I think we’re going to still keep it pretty simple. Two bundle options. There’s a third (you can build your own bundle as well), but yes, keeping it fairly simple. I think having too much choice probably overwhelms a customer.” 

Aaron: What advice would you give to businesses about to A/B test their pricing structure?

Ed: “You’ve got to constantly have a good hunch, a bit of instinct, and then just keep testing and learning, rather than resting on your laurels. However, I think I fell victim to just changing stuff so much that I couldn’t get any evidence or data. Now I let stuff sit. If we’ve made a big change, I wait and see what happens over a month or two and then review that.”

Just be clear in terms of the KPIs that you’re after. If you’re going to make any change, what KPI are you testing for? Are you trying to improve your conversion rate, increase your average order value, or reduce your cost of acquisition?”

Aaron: Knowing what you know now, what would you tell a founder at the pricing and early-research stage?

Ed: “Have a really clear idea about what your unique selling proposition. Because if you haven’t got that, then it’s really difficult to articulate why somebody should buy your product over something else. 

If you are going to price [your product] at a premium… you have to ask yourself whether anyone would actually buy it…Give yourself that room to account for unforeseen costs, promotional spend, marketing – everything’s going to cost more than what you think.”