---
title: "Why Casper lost money on every mattress it sold"
url: https://modern-mba.com/case/casper
sector: "Technology"
sector_url: https://modern-mba.com/sector/technology
published: 2021-04-27
updated: 2026-09-02
reading_time_minutes: 10
charts: 6
video: https://www.youtube.com/watch?v=WcNbIm0fRxk
publisher: Modern MBA
license: All rights reserved. Quote with attribution and a link.
---

# Why Casper lost money on every mattress it sold

Casper was the crown jewel of direct-to-consumer, raised $340 million, turned down $900 million from Target because it was not a billion, and IPO'd at half its private valuation to reviews calling it a disaster. The unit economics explain all of it: a 50% gross margin that looks healthy until you notice 91% of it went straight back into Facebook and Instagram. This case study reads Casper's own filings to show why a business that depends on cheap online advertising stops working the moment advertising stops being cheap.

## Key figures

- **91%** — Share of gross profit spent on advertising in 2017
- **$900M** — Refused from Target because the founders wanted a billion
- **−$200** — Lost on the average mattress once advertising and overhead are counted

## The argument

Direct-to-consumer was a genuinely good idea on paper. Traditional consumer goods live or die by getting onto the shelves of Target, Costco and Kroger, so they are designed to satisfy a retailer's cost requirements rather than a customer's needs. Cut the retailer out, sell from your own website, and you can make something better and charge less for it. Venture capital poured over $3 billion into the thesis, and Casper was its crown jewel — $340 million raised, Leonardo DiCaprio and 50 Cent on the cap table, and a $900 million offer from Target refused because the founders wanted a billion.

The IPO exposed what the private rounds had covered. Casper lost money every year of its existence: $73M, $92M, $93M, $90M. The mattress itself is fine — $710 average price, $377 kept after supply and delivery, a 50% gross margin any retailer would take. The problem is what happens to that gross profit. In 2017 the company spent 91% of it on advertising. Everything else — salaries, warehouses, delivery, the website — came out of nothing.

That works only while ads are cheap, and they stopped being cheap. Facebook's cost per click rose roughly 93% in 2019 alone as thousands of DTC startups bid for the same demographics, and customer acquisition reached $275 to $305. Meanwhile the ironic part: Casper's fastest-growing channel became retail, up 74% a year, with orders 15% larger than online. The thing it was founded to disrupt turned out to be the thing that worked.

## Charts

### Four years, four losses, no trend

Annual net loss. Casper lost money in every year of its existence and the last one, after a decade of scale, was worse than the first.

|  | US dollars |
| --- | --- |
| 2017 | −$73.1M |
| 2018 | −$93.2M |
| 2019 | −$93M |
| 2020 | −$89.6M |

Source: Modern MBA, “Why Casper lost money on every mattress it sold”, published April 2021. Chart: https://modern-mba.com/case/casper#chart-1 · Sources: https://modern-mba.com/case/casper#sources

### The mattress itself was never the problem

Gross margin. Around 50% on the product, which any retailer would take, improving every year after 2018. What went wrong is downstream of this.

|  | Percentages |
| --- | --- |
| 2017 | 47% |
| 2018 | 44% |
| 2019 | 49% |
| 2020 | 51% |

Source: Modern MBA, “Why Casper lost money on every mattress it sold”, published April 2021. Chart: https://modern-mba.com/case/casper#chart-2 · Sources: https://modern-mba.com/case/casper#sources

### Advertising ate almost the whole gross profit

Gross profit against advertising spend. In 2017 ads took 91 cents of every gross profit dollar; everything else came out of what was left.

|  | Gross profit | Advertising |
| --- | --- | --- |
| 2017 | $116.9M | $106.8M |
| 2018 | $157.8M | $126.2M |
| 2019 | $215.4M | $154.6M |
| 2020 | $253.9M | $156.8M |

Source: Modern MBA, “Why Casper lost money on every mattress it sold”, published April 2021. Chart: https://modern-mba.com/case/casper#chart-3 · Sources: https://modern-mba.com/case/casper#sources

### Ninety-one cents on the dollar, and it never got cheap

Advertising spend per dollar of gross profit. Four years took it from $0.91 to $0.62, still most of the margin on a product that was fine.

|  | US dollars |
| --- | --- |
| 2017 | $0.91 |
| 2018 | $0.80 |
| 2019 | $0.72 |
| 2020 | $0.62 |

Source: Modern MBA, “Why Casper lost money on every mattress it sold”, published April 2021. Chart: https://modern-mba.com/case/casper#chart-4 · Sources: https://modern-mba.com/case/casper#sources

### Growth was falling faster than the ad budget

Year-on-year growth in sales against growth in advertising spend. In 2019 the two crossed: Casper raised advertising 22% to buy 23% more revenue.

|  | Top-line sales | Advertising spend |
| --- | --- | --- |
| 2018 | 43% | 11% |
| 2019 | 23% | 22% |
| 2020 | 13% | 2% |

Source: Modern MBA, “Why Casper lost money on every mattress it sold”, published April 2021. Chart: https://modern-mba.com/case/casper#chart-5 · Sources: https://modern-mba.com/case/casper#sources

### The channel it was founded to disrupt is the one that grew

Retail sales against direct-to-consumer. Retail went from $12M to $134M in three years while the website it was built on added $58M.

|  | Retail | Direct-to-consumer |
| --- | --- | --- |
| 2018 | $12.4M | $304.9M |
| 2019 | $88.8M | $350.5M |
| 2020 | $133.9M | $363.1M |

Source: Modern MBA, “Why Casper lost money on every mattress it sold”, published April 2021. Chart: https://modern-mba.com/case/casper#chart-6 · Sources: https://modern-mba.com/case/casper#sources


## Takeaways

1. 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.
2. 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.
3. **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.
4. 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.
5. 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.
6. **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.**
7. 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.
8. **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.
9. **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.
10. 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.
11. **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.
12. 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.
13. **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.**
14. 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.
15. 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.
16. **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.

## Common questions

### Why did Casper fail?

Because it spent nearly all its gross profit on advertising and the advertising kept getting more expensive. The mattress economics were fine — $710 average price, $377 kept, a 50% gross margin. But advertising consumed 91% of gross profit in 2017 and never fell below 60%, leaving salaries, warehousing, delivery and everything else to be funded from losses. When Facebook's cost per click rose roughly 93% in 2019, the model that depended on cheap ads stopped working. Casper lost money in every year of its existence.

### How much money did Casper lose?

$73 million in 2017, $92 million in 2018, $93 million in 2019 and $90 million in 2020 — every year it existed. On a per-unit basis the company bought a mattress for about $400, sold it for $700, kept roughly $300, then spent about $300 on advertising and another $300 on administrative overhead, while refunding around 20% of sales under its 100-night return policy. That works out to losing roughly $200 on the average mattress sold.

### Did Target really offer to buy Casper?

Yes, for $900 million, and the founders turned it down because they would not sell for less than a billion. Target could not match that and settled for taking an investment stake instead. Casper reached a $1.1 billion private valuation in 2019, then halved it to $500 million to get its IPO away in 2020 and shed another $100 million after listing. The refused offer looks worse with every year that passes.

### What is the direct-to-consumer business model and why did it stop working?

Make a decent product, cut out the retailer, brand it with a sans-serif typeface and pastel palette, and sell it from your own website at a lower price. The logic was sound: companies that sell through Target or Costco design products to satisfy a retailer's cost requirements rather than customers. What the model quietly depended on was cheap social advertising, which was a genuine arbitrage in 2014 and 2015. Once thousands of DTC brands and incumbents were bidding for the same demographics, acquisition costs rose past what the products could support. Brandless died, Dollar Shave Club exited quietly, and Everlane, Away and Casper all opened stores.

### Is Casper's retail business bigger than its online business?

Not bigger, but growing far faster and worth more per order. Retail sales grew 74% year over year to about 20% of revenue while direct-to-consumer sales grew 20%, and the average retail order is 15% larger at $820 against the online average. That is the irony of the case: the founders were publicly proud of not needing stores, arguing a good website could sell anywhere at any time, and physical retail became the channel executives hoped would save the company.

### How much does Casper spend to acquire a customer?

Between $275 and $305, against an average selling price of $710 and gross profit of $377 per mattress. That single figure explains the company: acquisition alone consumes most of the margin before a single salary, warehouse lease or delivery is paid for. And because competing mattress startups target the same customers through the same channels, Casper cannot reduce it without losing the growth that justified its valuation.

### Why doesn't advertising more just fix Casper's growth?

Because the market has a hard ceiling. Americans replace a mattress every 9 to 10 years, so there is a finite number of people in the market at any moment and no amount of spending expands it. Casper's growth decelerated from 43% to 23% to 18% even while advertising stayed enormous. There are also only so many times the same people can be shown the same Facebook, Instagram, YouTube and podcast ads before the campaigns simply become exhausting.

### Was Casper ever a technology company?

No, and that mismatch is the heart of the case. Wall Street has shown real willingness to look past losses when it believes in a technology company's future growth. Casper sells mattresses — not software, not hardware — with a product cycle measured in a decade and no structural margin advantage over the incumbents it set out to disrupt. Silicon Valley funded and framed it as innovation, which worked right up until the public filings made the unit economics legible to everyone.

## Discussion

- Casper's gross margin was 50% — genuinely healthy. At what point does a marketing budget stop being an investment in growth and become a permanent cost of goods sold?
- The DTC thesis assumed the retailer was pure overhead. Casper now earns more per order in retail than online. What was the retailer actually providing that the model priced at zero?
- Facebook's cost per click roughly doubled in a year and took a whole category with it. What does it mean to build a company whose viability depends on another company's ad auction?
- The founders refused $900 million holding out for a billion, and the company later listed at $500 million. How should a board evaluate an offer when the number is close but the story is still intact?
- Americans buy a mattress once a decade. Was Casper a bad execution of a good idea, or a good execution of a business that could never have compounded?

## Sources

Net losses by year, average selling price, gross margin, advertising spend as a share of gross profit, customer acquisition cost, revenue growth rates and the retail versus direct channel split from Casper Sleep Inc. S-1 and subsequent annual filings, 2017 through 2020; funding totals, the Target offer and pre-IPO valuation as reported at the time; Facebook cost-per-click movement from 2019 industry reporting

---

From [Modern MBA](https://modern-mba.com/). Read this case in full at [https://modern-mba.com/case/casper](https://modern-mba.com/case/casper), or watch the episode at https://www.youtube.com/watch?v=WcNbIm0fRxk.