Luff Sleep

I sat down with Steve Goknel to run through the Numbers of his company, Luff Sleep.

What is Luff Sleep, and who is Steve?

Luff Sleep is a British luxury bamboo bedding company that focuses on helping people enjoy ultra-high-quality sleep products like pillows and bamboo silk bedding. 

Before their first sale in the backend of 2019, Founder Steve had worked in a combination of design, sales, and marketing roles. One of his clients, whom he managed the sales team of, a luxury bedding company called Simba Sleep, is what gave Steve the conviction Luff Sleep (formerly Mello Sleep) would work well. He worked very closely with Simba Sleep and therefore knew the sales process, what worked and what didn’t. Steve’s additional knowledge in Chinese manufacturing being a part owner of a factory out there meant his understanding of logistics and distribution gave him an unfair advantage.

Not to mention speaking with hundreds of customers a day by working closely with Costco and doing daily product demonstrations, Steve had invaluable insight. For instance, through iterating his product and talking to lots of customers, he realised people care about the anti-bacterial benefits and allergy relief of bedding items. By listening to what the customer really wants, Luff Sleep is now on their seventh iteration of their product.

Numbers

The day Steve first started selling was the 5th of December 2019 in Southampton, Costco. It was a leap of faith. Luff released two different lines of pillows after Steve used his own life savings to get them to market. A 40-foot container (6 ½ tonnes of pillows) landed in the UK without Steve having sold a single one yet.

Even when Luff has pillows ready to be sold in-store, Costco goes on consignment. This is when a third party is left to hold the goods to sell them. Therefore, this means Luff only makes money when a product of theirs goes through the till in-store; Costco does not pay in advance. This was clearly a huge risk; however, in the 20 days leading up to Christmas, the company generated £16,000 in sales. After taking a tonne of risk, Steve now knew it could work.

In relation to margins, from 2019-2020 there were many moving parts. Gross profit margins were 42% in 2021, increasing to 58% in 2023, and forecast to end   2024 at 62%. Luff Sleep currently has four different suppliers, all with their own specialities to make certain products. As relationships with these suppliers increase and as Steve finds cheaper alternatives to hire, he expects future margins to keep increasing at the same rate. Additionally, with the factory that Steve co-owns, he gets full visibility and priority with all manufacturing procedures, keeping costs as low as possible.

Luff Sleep recently shut down their physical retail shop. Although they had direct supply and a full end-to-end supply chain from the factory to their shop, it was not profitable. The business consistently lost £30,000 every year for 3 years, and so they shut the shop down 3 months ago. Currently, they’re focussing on what’s working—their wholesale channels and direct consumer sales.

The ratio of D2C and retail partners is 1:4, respectively. They currently sell in channels like Costco, TK Maxx, and Debenhams, and approximately 50 independents too.

Revenue growth:

• December 2019: £16k 

• 2020: £391,000

• 2021: £657,000 (lost £59,020)

• 2022: £1,002,000 (lost £39,000)

• 2023: £1,074,000 (lost £22,000)

• 2024: £1,100,000 (EBITDA: £30,000)

2020-2024 revenue CAGR: 29%

EBITDA Forecasts (including 2024 investment):

• 2025 f’cast: £350,000 EBITDA

• 2026 f’cast: £1,200,000 EBITDA

Revenue has steadily been increasing YoY for 5 years. As for profitability, the company is on track to end its first year in profit this year. Actions like closing the physical retail space and recently landing a cheaper and better quality supplier have positively impacted profitability. Steve also forecasts revenue to increase from sales generated through the use of Amazon and TikTok. These are two highly profitable channels that haven't yet been explored properly by Steve. Amazon in particular was started around a month ago and has generated £5,750 in the last 30 days of trading.

Luff Sleep pays £0 for advertising like pay-per-click or paid search because of a clever deal with a friend. A contact of Steve’s runs their own marketing agency that spends between £6,000 and £7,000 per month to run ads. Instead of paying for the service directly, the marketing company owns an e-commerce website exclusively selling Luff Sleep products. In return for traffic, Steve’s contact buys the products at a discount and sells for a profit. Steve generates a small chunk of revenue for selling these products at a discount. As for other sources of traffic, Steve pays a freelance PR contractor to write about them and speak with journalists. Being in articles like Vogue and Independent, etc. drives a lot of the right traffic.

Currently, the conversion rate for this traffic is 1.93%, and last year they hit 30,000 sessions on the website. In the last 365 days, online purchases have generated £140,000 in sales, and 13% of customers return to the website and repeat purchases within a year.

Lessons

One of the biggest lessons Steve has dealt with was with a trademark. Luff Sleep was rebranded from MELLO Sleep just before launching in 2019. The reason was because someone in the US bought the trademark after seeing samples being made in a factory in China with the MELLO name. This leads to 3 options: take legal action, pay a (very high) premium for the trademark, or change their name. Steve chose the latter, costing thousands of pounds to change everything from the packaging to the names on websites, etc.

Investment

Luff Sleep is looking for angel investors to raise £350,000. This money is to fuel growth of the business predominantly by investing in more stock to fulfil the demand of orders. Additionally, through hiring in the sales arm of the business. Luff Sleep already has strong internal systems set up to continue growing in existing stores like Costco and online marketplaces like Amazon.

The focus now is hiring business development managers to increase B2B sales and land contracts with the likes of John Lewis and M&S.

Additionally, Steve is looking to hire an online sales manager to help really drive direct online sales on their website. He thinks that although spending the money to hire good people will reduce the business's profit margin over the short term, net profit overtime will benefit greatly. 

If you’re interested to learn more about the business and have the capital to invest, either reach out to me or Steve via LinkedIn

Links:

• Reach out to Steve on LinkedIn Here

• Luff Sleep website to check out the brand and their products

- Luke