Why Casper lost money on every mattress it sold

The DTC pitch was coherent and that is why it raised so much. Traditional consumer brands only make money by getting into Target, Costco, Kroger or Whole Foods, so products get designed to hit a retailer's cost requirements rather than a customer's needs. Remove the retailer and you can, in theory, make something better and sell it cheaper.

Venture capital took that literally, putting over $3 billion into DTC in a decade. Casper was the crown jewel with $340 million raised over five years and Ashton Kutcher, Leonardo DiCaprio, Adam Levine and 50 Cent on the cap table.

Target offered $900 million and was turned down because the founders would not sell below a billion. Target settled for being an investor instead. Casper reached a $1.1 billion pre-IPO valuation in 2019.

The public listing was the reckoning. Casper halved its valuation to $500 million to get the IPO away in 2020, and was described in coverage as desperate, embarrassing and a disaster.

It kept falling after that: another $100 million of valuation gone, the European business shut down, the COO/CFO lost, and 21% of the workforce laid off. Everyone who bought at the billion-dollar private price, celebrities included, lost money.

Casper had never made money in a single year of its existence — −$73M in 2017, −$92M in 2018, −$93M in 2019, −$90M in 2020. Losing money is normal for a startup that Wall Street reads as technology. Casper sells mattresses.

The product economics are genuinely fine. The average mattress sells for $710 and Casper keeps $377 after supplier and delivery costs — a 50% gross margin most retailers would take happily.

The gross profit never survived contact with the marketing budget. Advertising consumed 91% of gross profit in 2017, then 80%, 73% and 60% in the years after. At 73%, every dollar earned on a mattress sends 73 cents straight back to Facebook, Spotify and Instagram — leaving salaries, R&D, warehousing, delivery and the website to come from somewhere else.

Advertising is meant to grow a business, not to sustain one. Spending most of your gross profit to make the next sale is not a growth strategy, it is a treadmill.

The model only ever worked because ads were briefly underpriced. In 2014-2015, Facebook targeting was cheap, effective and far cheaper than billboards or television — a genuine arbitrage for whoever moved first.

Then the arbitrage closed. As thousands of DTC startups and established consumer brands bid for the same demographics, Facebook's cost per click rose roughly 93% in 2019 alone — meaning a dollar of ads now had to become two just to hold the same result.

Acquisition costs followed. Casper now spends $275 to $305 to acquire a single customer, and with competitors chasing the same buyers through the same channels it has no option but to keep feeding the same pit to hold flat.

The whole business in one line: buy a mattress for $400, sell it for $700, keep $300, refund 20% of them under the 100-night policy, spend $300 on advertising and $300 on overhead — and lose about $200 on the mattress you just sold.

The spending would be defensible if it bought growth, and it did not. Revenue growth fell from 43% between 2017 and 2018 to 23%, then to 18% — decelerating while advertising stayed enormous.

The market may simply be this slow. Americans replace a mattress every 9 to 10 years, so the first 2015 cohort will not reveal a true repeat rate until 2025. No amount of advertising changes a ten-year purchase cycle.

And the fastest-growing channel is retail — the thing DTC existed to disrupt. Casper's retail sales grew 74% year over year to 20% of revenue while direct sales grew 20%, and the average retail order is 15% larger at $820. Everlane and Away made the same reversal; Brandless did not survive to make it.