235 - How Mattress Firms Make Money Despite Empty Stores with Nick Hancock

0:00My dad built up a mattress business doing$3.9 million in revenue up until 2008. Had 20 plus employees, 8 stores. Just an absolute badass in every sense of the word. Unfortunately, really lost it all because of the recession. If it weren't for his sacrifice, none of this would be possible. The Airbnb deal was$11 ,521 mattresses. They found me on Twitter. I did it on New Year's Eve. Mattress firm was selling this for$6 ,000,$7 ,000. You could get it for$2 ,000 from me. Why are you wasting your money? Do you like your money in your bank or in another person's bank? I'm going all in on my mattress business.

0:36All right. We got the mattress guy on here. Freaking stoked to talk about mattresses. Let me ask you a question really quickly. What's the grossest mattress you've ever seen? I've seen countless with just multiple stains on it. You get the stains. Are there maggots? You ever find like maggots in them? I haven't yet. Thankfully. I don't know if I would even what I would do. I'd probably call like a removal company. I try and stay away from used mattresses at this point. Dude, it's the stains. You posted a picture the other day. It was like, is that blood or coffee or poop? Or like, what the freak?

1:09I had one recently. I was helping an old lady out and I picked up the mattress and I felt the wetness on it. And I was like, this is disgusting. Dude, I heard the stat. Like if you have a mattress for 10 plus years, like a certain number of pounds of accumulated human like skin shedding is in that mattress. Is that true? That's that's what people don't understand fully is like your body just naturally sweats. So you don't have to pee the bed or spill wine or whatever. Like you're just naturally going to have right your bodily. It's disgusting. Oh, my gosh. All right. so you own a mattress business yep i'm gonna do like a quick background on you it was a it's a family business your dad owns a store your brother owns a store you went out kind of on your own learned the business ended up coming back to where family is and now are you operating in the same market as them i'm in charlotte the air and my brother's in raleigh my dad's in wilmington but yes i started out in pittsburgh to start so you have these mattress stores across the family Are you guys sharing any resources?

2:16Yes, everything. So essentially, we all own and operate our own location, but we come together collectively as a team when buying, when talking through strategy, when marketing, etc. What about things like payroll, accounts payable, financing, those types of things? Yeah, I mean, we don't have to necessarily worry about that yet. To be honest, we all don't have any employees or anything under us. So it's kind of a one man band on each location. But in the future, yes, like we're talking about rolling out online as well here in the next three or four weeks. That'll be something where we share expenses and everything on all that.

2:56What's the name of the company? Direct Outlet Mattress. Direct Outlet Mattress. Is that a franchise or is it like that's your guys' family company? Here's another big question. I don't remember the name of the companies, but it's the one that is the mattress company with like a red sign. But they have all these brick and mortars everywhere. and I don't ever see people in these freaking stores. I don't understand what the business model is, dude. You have the real estate, you have the overhead, but nobody's in your store. How do these businesses make money? It's because all you need is one to two to three customers a week and it pays the bills.

3:30People say this about Mattress Firm 24-7. They're like, it's money on. Mattress Firm, Mattress Firm. Mattress Firm, yeah. Mattress Firm's the biggest. They're multi-billion, by the way. They just got bought out for 4 billion. Oh my gosh. tie with PE. They sell mattresses for six, seven, eight grand every day of the week and twice on Sunday. They sell adjustable base as well. You can literally, if you go to their website right now, you'll find Tempur-Bedics anywhere from 10 to 16K. And that's for the mattress and the adjustable. Do they cost 5K for that? No, no shot. I mean, they're making high margins, 60, 70 % margins, right but then they have all the employees marketing etc that they pay for so that's that's a simple answer for you oh so since it's a high ticket item it's like i need i just need a few of these a week a thousand percent they make it up right i mean they're the biggest known mattress brand in in the u.s so they make it up with you know foot traffic and all their ads that they they spend countless millions on right we bought a new mattress last year in the last year but you know 2024 and we spent five grand on it it was at a mattress firm there you go cool let's let's go do this thing here's another thing i don't understand most of the mattress firms that i've seen are in really good locations like they're on really busy streets they're highly visible it's not like they're in the business park you know what i mean is that strategic like is this yeah location location location right i mean it's convenience mattress firm is all about convenience.

5:02That's why you'll see one on one side of the street and one on the other, right? They're trying to hit people on both drives, right? So there's a very traditional model where it's, they just want to saturate the market and then they get almost all of it, right? Big time foot traffic, people searching on Google and you're two, three minutes away from a mattress firm. Tell me about the stores themselves, like your stores. Do you own the real estate or are you leasing? No, no, we rent. Okay. What about a company like Mattress Firm? Do they own the real estate or are they leasing? I have to double check on that.

5:33I assume at some point they do. I know that it depends. They have now what used to be one of my dad's stores and they rent it out. So I think it probably depends. I assume with how much they have over, I think it's like 2 ,500 locations. So I doubt they own all of them. That would be a lot of real estate. Yeah, that would be a lot of real estate. They probably have a good majority of them that they own. So let's look at a store like yours and we can maybe try to make it analogous to mattress firm, but how many square feet is your store? My, my store is about 3000 square feet. Okay. So 3000 square feet and your, your monthly lease is what on that?

6:11Mine's more expensive here, to be honest, that's 3 ,300. Okay. So 3 ,300. And then you've got how many employees that work for you? None. It's just you. Yep. Okay. That's right. All right. So you're running the business full time. What other overhead expenses would you have? So 3 ,300 for the lease, maybe you have some utilities in there. Yeah, really advertising. We're spending out another grand or so grand to two grand-ish in advertising. Marketplace, Craigslist, OfferUp, we're all easy ones. But then really trying to build out, you know, the business like ours, word of mouth, right? Referral programs.

6:46Interior designers are great because they have people who want to spend five to six to seven grand on matches right and then realtors as well business like yours let's say if your lease is thirty three hundred dollars a month marketing is a thousand dollars a month let's just round up and say five grand a month is like your overhead right this is fixed cost this is what i'm spending every single month so now look at it to be fair as well and if you look at it from that perspective if you're selling a six seven eight thousand dollar mattress i know you're not I'm just going back to the mattress firm, six, seven,$8 ,000 mattress.

7:21You need to sell like two of those a month to basically just meet your overhead. That's crazy. Okay. That makes sense. That store that you went to, that one sale, you know, paid for probably two weeks, at least for them. And then they need another one for the next two weeks. Insane. Are there franchise mattress stores? Yeah, definitely. Yeah. I mean, I don't want to give all of them, you know. But yeah, there's tons of them out there. And honestly, a lot of them are garbage. Let's get into like the business mechanics of it. How do you acquire customers? Because you just said Facebook Marketplace, Craigslist, surprising.

8:00And then you're like working on word of mouth. What are the traditional ways that you typically find customers for your store? Google's the biggest, right? I mean, people just search mattress store near me, right? King mattresses near me, whatever the case is, right? So that's the first thing. And we have a marketing team. And are you focused for Google? Is it like SEO? Is it pay-per-click? Right now, SEO. We will get into PPC down the line. We use Bodie and Striker. Oh, dude. Awesome. I love Bodie. I had him on the podcast. Yeah, they're great. They're great. So we use them for all three locations.

8:35And then eventually we'll do PPC as well, especially as we build out our online. What about Google Business Profile? Is that something you focus a lot on or no? They handle all that for us. Yeah. Kind of all included in the SEO thing. Cool. So there's the Google side and then interesting Craigslist and Facebook marketplace. Like how do you advertise on those? And to be completely transparent, Facebook used to like Facebook's died down a good bit. Facebook used to be like, I could get people buying a thousand,$2 ,000 mattresses all the time. It's gotten far lower in quality, especially over the past two or three years.

9:10when I was in Pittsburgh, where I started, which I did, I think it was close to 68 ,000 in the first four months there in sales. It was probably 50 % of my sales were Facebook marketplace out there, different dynamics and everything out there. But yeah, it was just Facebook marketplace. I don't know what to say other than that. We use something to automate it. So it's pretty easy. How much did you do in your first, you said$400 ,000 in your what? No, no, no, no. 68, 68 ,000 in the first four months. Sorry. Wait,$400 million in two days. You're like, no, no, no, no, Nick, you're an idiot. That's not what I said.

9:48So Facebook marketplace isn't as big of a channel for you, but Craigslist is Google's the biggest and then word of mouth and just like getting your name out there and programs. It's like, do you do mailers? Do you do? No, we don't haven't seen them as effective. You know, I mean, think of like, I mean, I got thousands of things in the mail for like, especially political season. Right. And it was just like garbage. I'm like trash, trash, trash. Right. So. So what is your, do you know what your customer acquisition cost is right now? I don't think we have like a pinpoint number on it, to be honest with you.

10:23I mean, it's less than a hundred for sure. Let's calculate it. If you're spending a thousand dollars a month on marketing, on average, how many customers are you getting a month? we're anywhere in the i'd say 20 to 30 range 20 to 30 okay so if it's 20 that's 50 dollars yep if it's 30 it's 33 dollars so you're between 33 and and 50 dollars right per customer right yeah how much revenue are you doing a month so let's see we're on pace for about 200 ish 200 or thousand a year. So I think that brings us up to like 20 ish. Yeah. Cool. So let's say 20. Wow. So if you're, if you're spending a thousand and you're getting 20 ,000 coming in the door, right.

11:07That's a 20 row as that's, that's pretty good. Yeah. I think repeat referrals, right. Google, it all kind of plays in, you know, the model isn't like these bigger stores, right. where it's foot traffic, et cetera. The model's more driving people to a location rather than the location driving the sales. It's$20 ,000 a month and you get 20 customers a month. That's only$1 ,000 per customer per month. Is that your average ticket size or is that just... Yeah, right now. And to be honest, in the past three months, yeah, I'd say so. Our business is completely... This is a fascinating time for us. It's completely changing.

11:47we used to cap out right around 1500 2000 in the past three months we've taken on other lines new models this is right around the time where it all changes now we're up to 3 ,000 or 3 ,500 right it's almost doubling our total ability there so what does that mean when you expand new lines and isn't it just a mattress or like what no there's a thousand things that go into mattresses that's really an educational thing at the end of the day so you have like individually pocketed coils is the best coil unit you can have in a mattress you have different layers of memory foam so you have like low density and then high density right high density would be considered like what's in those like i don't know if you bought like a tempurpedic or what you bought from mattress firm we didn't buy a tempurpedic my wife did not like the way the tempurpedic felt gotcha we got it is a traditional mattress with springs in it but it's like some hybrid type some hybrid type so right there that tells me that it's got memory foam in it if it's a true hybrid which for five grand you better be getting that and then it's got individually pocketed coils the base was in there too right so it's probably 1500 for the base and then the rest or some split i'm not sure exactly what it was right right yeah base isn't like an adjustable base or okay gotcha cool yeah can i just say for a second life-changing yeah i'm dead freaking serious do you have an adjustable base i don't i've never i don't know i'm single so it doesn't really for me I'm an old married man.

13:15I'm, I'm telling you, I'm telling you right now, the ability to prop your head up, bro. Oh my gosh. Like I don't have to have five pillows behind me anymore to like my wife and I to watch a show. Talk about put my feet up zero gravity mode or my wife and I call it zero grav. It's, it's incredible. It has like the vibrating massager, which I thought was super stupid at first and now i'm like you love it take me away just take me away yeah it's it's amazing like legitimately one is it all one king for you guys yeah yeah it's all it's all one king i didn't want the i don't know i just felt like there's two at that point it's like too many moving parts and i don't know that that just felt silly for me but i dude it's people the twin xl route when they can't compromise on a mattress right and so that's typically the route there but it's more expensive you're talking another three it is it is and like honestly i'm a i'm i fall asleep really easily so i was good to go with whatever my wife says guys always just do whatever their wife says every time but i will say i like for the first time the week after i got it the first time i was like i understand why the sales tactic now is like you spend a third of your life in bed you know what i mean it's like you you should treat yourself come on spend a little more yeah i've had both my brother-in-laws come over and i'm like when we first bought it i was like dude come upstairs like what i'm like just come with me and they're just i'll go and lay in my bed and they're like this is kind of weird and i'm like yeah but it's amazing right yeah and anyways well Well, you know, they say about shoes and mattresses, they say, if you're not on one, you're on the other, right?

15:05If you're not on one, I haven't. No, I hadn't heard that. Yep. There you go. Okay. So anyways, you've basically expanded the quality offerings, I guess, like those being sort of the high end. Okay. Exactly. The quality offerings, but also the ability for us to capture more on our revenue and to get our LTV up, right? it seems to me i don't know if you spend 1 000 and it generates 20 000 why not spend 5 000 and generate 100 000 yeah the hardest part with the store model and this is where for me it's always been a catch 20 right is you still got to reinvest that money back into inventory right and so you have this inventory turn and then some inventory doesn't turn like you expect it to and so that's probably the hardest part now that is changing so we've like i said a lot's changed in the last three months really for us a lot of our higher-end models were bringing in less in inventory and we're just saying to our our manufacturers hey ship it to us when when we need it right and so we'll order stuff in and just tell our customers three to seven days and then we have less money in inventory right so we're getting better at just like cash flow as well there so So it's kind of a combination of those things.

16:24Is it pretty typical for you to, for mattress companies to just hold a bunch of inventory? Yeah. I mean, when I started out in Pittsburgh, we had 30K in the business. Is that because people want their mattress right away? And if you can't deliver it right away, they'll like walk? Especially the cheaper, cheaper people. I didn't know that. Oh yeah. I guess that makes sense. Okay. So it is a pretty capital intensive business, but it's all tied up in your inventory. Yeah. Yeah, like I have a customer later today and I expect to probably deliver it tonight. Other than the mattress sales, are there any other revenue streams?

16:58Yes, like other products and stuff we do. Pillows, protectors, adjustable bases, you mentioned it, bases. So there's all these other add-ons that we'll do as well. What about like pickup and delivery? Yeah, don't really make a lot of money there, to be honest with you. And not really something I care a lot for. I think it's just time out of the business really more so for me. So we charge for it. I don't really get excited doing it. What about things like warranty? Like, oh, you know, buy a three-year warranty for your mattress. Do you sell things like that? It comes included with the mattress.

17:32Okay. So you're buying it from a manufacturer and the manufacturers have the warranty. You as the mattress company, the wholesaler are not selling. Okay. That makes sense. Right. What are typical margins on a business like this? I kind of break it up into three different categories, especially now like Twitter and everything. Residential, anywhere from 50 to 60%, right? And for mattress firm, et cetera, probably even more so. And that's gross margin or is that like net? So net is going to be around 30 to 33 after probably everything said and done. But yeah, gross on like just mattress, here's my cost of goods, right?

18:09Airbnb around the 30 to 40-ish. mark depending on volume and then hotels anywhere from like the 10 to 15 ish range oh because on hotels you're making it up in volume as opposed to oh yeah real just the market yeah which one do you like the best if you had to pick one to just like go all in on just do 24 7 hotel obviously Really? Yeah. Why? Well, one, I like talking to business owners, so that's great. Francis, the hotel deal we did, right? People can kind of infer some numbers, but this is public. $104 ,000 hotel deal, 392 mattresses. Wow. We actually saved him. He got a quote for us. The guy's name is R.

19:01Pete. until you can find him on Twitter, which is also another cool thing. The guys under like 1 ,000 followers on Twitter are just like usually the guys who got it. The best. Yeah. 132 ,000 is what he got quoted. And we were able to do it at 104 ,000 out in Gautenburg, Tennessee. And just gave him a better quality mattress, you know, top to bottom in terms of specs, et cetera. Looked at everything for him. Something's going to last longer. But like that, that interaction with him was just the best. When you say you did it in Pittsburgh and then you came back, was Pittsburgh your own thing or were you working for?

19:36Yeah, it was my own thing. I wanted a little out of North Carolina, experience something different. Cool. I got it. But then when it was time to come back to family and everything, I came back. How much does it cost to start one of these up? Well, I think when I started mine in Pittsburgh, I was right in all in for 30K. And then how long until you're profitable? Were you profitable month one? Yeah, I mean, I was profitable month one. That's how kind of our business model works, especially with marketplace just taking off. I mean, like I said, I did 68 ,000 in sales in the first four months. It's not like a logistics issue.

20:12You personally could sell 100 mattresses a month or you could sell 10 mattresses a month. That doesn't really matter. You don't need to add any more employees. So if I was doing it locally, I might. if I was doing 100 a month, I'd probably have to hire an assistant for driving and stuff like that so that I could be in the store selling. But if we were doing it online, no. That was what I was going to ask. You have companies like Purple, Casper, these direct mail, which we tried first. That was the first one that we bought. We needed a mattress and we bought that. And I was like, this is junk. Which one?

20:53I love hearing this. i don't remember which one i just i know it was one of them both purple and casper you didn't like sure purple and casper i want to say it wasn't one of them i want to say it was like an other one that is like whatever another marketing company disguised as a i'm not not saying it because i don't want to help them i literally just don't remember like i'll ask my wife and i'll text you later but we got it we and i like laid on it and i was like not good what are we doing here so we we ended up returning it and that's when we went to the mattress firm and like tried out all the mattresses, but they're marketing companies.

21:25Like you said, that's essentially what they're doing. So they're going out, they're just acquiring customers and they're drop shipping. Basically, how do you view them as competitors? Are they totally different businesses or are they real competitors? They're real competitors because they have share of mind. We're kind of targeting that now and a little behind it, but I think long-term quality wins. And so I think the problem with a lot of these companies is they haven't really figured out the mattress side of things as much as the marketing side of things and they're going to lose on quality long term when you say the mattress side of things why is it just because they're the manufacturer yeah they just put cheap crap in their mattresses and then you know they have they have great profit in the short term but long term it's not going to last at hub hold do they have to put cheap crap in their mattresses because of the way that they're shipping it No, they don't have to.

22:17No, we have some of the companies we work with, people I ship to on Twitter, largest manufacturer of memory foam and hybrid mattresses in the US. They make a damn good mattress. I sleep on it personally. It's Tempur-Pedic quality without the price. That's what I ship to everybody. This is the thing that's really interesting about what you're doing is you have the traditional brick and mortar, which is cool. And it's like it's geographic based. You know what I mean? Like that's how you're acquiring customers is locally. And then you went out and built this brand on Twitter where you're the mattress guy and you just totally niched down on it, but you've generated sales from it.

22:56I want to say, I saw a tweet saying you've generated like$150 ,000 in sales just from Twitter. Exactly. The hotel deal, an Airbnb deal, and then a bunch of residential. Yep. How do those work? Are you online or is it like you're taking a manual order and then. All phone. Really? People. Yeah. We haven't got it where it's perfect, and I don't care. I'd rather struggle through the scale than anything, because then I'm talking to my customers. I feel like a lot of people are missing touch with talking to customers because they want to automate everything and blah, blah, blah, blah. If you hear your customers, you're going to know how to grow your business even better.

23:38Is that the plan? It's like, hey, we're never going to have a website where you can order, or is it like that's in the world? That's changing in the next three to four weeks, actually. What's interesting about Twitter is that you can spend$1 ,000 a month on Google and you're acquiring 20 customers. And I'm not going to say there's no cost associated with Twitter because there is a real time cost. Like you've spent a lot of time personally investing in that. But once business starts coming, there's no customer acquisition cost, right? It becomes a self-fulfilling prophecy. Did you know that when you started, were you like, I'm going to be the mattress guy and that's going to get business?

24:17Or were you just thinking around and thought? I talked about useless crap. I talked about two other business ventures that didn't work out. What were they? What's that? What were they? A cleaning business, which worked, but like it was just everybody and their mother does it. And then SEO, SEO business as well. It just didn't work out with a partner. it was in december when i finally was like enough's enough like i just need to focus on mattresses it was always like three months ago yep 150 grand in three months yeah good for you dude but awesome that's incredible thanks bro like genuinely that is impressive it's been awesome i love it i love twitter okay so december you're like there's no mattress guys on twitter i'm gonna to be the mattress guy.

25:07Honestly, it wasn't even that, man. I just, for me, it was like, you know what? I'm going all in on my mattress business and that's that period. And I told that to my brother and his, and his, his, his wife. And, and so I was like, all right, let me put my money where my mouth is. I was just really pissed off. And every time I've been pissed off has been when I've done very, like done very well, same thing for the 68 ,000 in four months, my dad pissed me off calling me a cow potato and i just was like f you let's let's see and then i sent him a screenshot like a year later my numbers anyways but yeah december i was like let's just do it and i just started talking about mattresses 24 7 was straightforward like hey mattress firm is selling this for six seven grand you could get it for two grand from me why are you wasting your money do you like your money in your bank or in another person's bank that is really really smart so I'm going to detour for a second because there's the Twitter distribution model, which is interesting in and of itself.

26:07But you said something that I think is gold. I think that many people need to hear. You picked one thing and you doubled down on it. Not enough people are doing this. Why did you do that? What was it? Because I failed. Was that what it is? Yeah. I mean, I failed at the other two things. I was humiliated. I put a lot of eggs in two other baskets and I was like, what am I doing? I had this like come to Jesus moment where I was like, what the freak am I doing? You know, I've spent the last three, four years doing mattresses and I don't like, I have something to show for it, but not what I, what I could be.

26:46And to be honest, it was a little bit of like imposter syndrome running from a business that I felt like was really my dad and my brothers, you know? And I'm like, no, like I'm, I have just much part of this as they do. And I need to put my stamp on it. And that's what I've done in the last three months. How old are you? 27. One of the things I had to realize, I don't know, in my early thirties was like, there's no shortage of good opportunities. There's no shortage of like, Oh, I could make money here. I could make money. Chris, but you know, my business partner, mobile home park guy, that's his whole shtick, right?

27:17It's like business porn. Like you can make money here and a hundred thousand dollars in three days. And that stuff is really attractive, right? But it's also very distracting. And I'm not, I'm not knocking christen i'm just saying that yeah it appeals to a lot of people who are trying to figure out what their thing is and what i've found is especially when you're starting you just got to pick the one thing it doesn't matter necessarily what it is it doesn't matter even if you're in love with it just like pick the one thing become good at it and then you can set yourself up for freedom down the road yeah instead of being a jack of all trades and a master of none dude, 100%.

27:54Or I saw a post last night about this where a lot of people think I'm going to buy a business and hire an operator. I want to buy a business, but I don't want to buy a job. I'm like, you should buy a job. You're a entrepreneur at this point. We all started there. You don't know what you're doing. You don't know how to manage stuff. You don't know how the business operates. If you don't know how a business operates, it's really difficult to manage that business. And then on top of that, if you haven't earned your success, if you're just like hiring people out, it's really hard to appreciate that success.

28:23And if you don't appreciate it, you aren't going to respond the way that you need to respond in order for it to continue to be successful. Anyways, I have a soapbox on this, but. No, I a hundred percent agree. And I'll just, I'll just say this, like, I now know the sacrifices my dad made when he started everything. My dad built up a mattress business doing 3.9 million in revenue up until 08. Had employees, eight stores, just an absolute badass, right? In every sense of the word unfortunately really lost it all because of the recession and held on at 2014 and you know but if it weren't for his sacrifice like and if it weren't for my grandmother telling him to get a real job to marry my mom you know like that's a crazy story in itself you know none of this would be possible right and so i think there's such a there's such a blessing in that but there's like there's a blessing in and just grinding it out and figuring it out along the way i mean part of how i got the hotel deal i got the airbnb deal before that so the airbnb deal was 11 500 and 21 mattresses they found me on twitter as well and i did all that and do you know when i did it i did it on new year's eve okay new year's eve i'm in this guy mike my mysner i think is how he's pronounced the last name he's off twitter as well and i'm in their their new places just because like i wanted to get my part of the job done so that they can get their airbnbs rolling and so i was like all right frick it new year's eve that's what i'm doing my friends are out partying yada yada right this is such a blessing though i knock it all out i do a great job and mike's like if you want to use me you know as you know for or whatever like if people want to talk or whatever i'll be happy to have our call the hotel guy was like who do you got to talk to i said mike he hops on a call with mike and then ends up going through the deal with us right that's awesome man but if it weren't for me like taking the initiative and like just grinding it out on new year's eve and i could have gone out you know drank my stars away with all my friends right like but it just like to me it's like this is this is it like put your money where your mouth is if you're about it go be about it go do something i freaking love that what's your plan for the next six months to a year?

30:43What's, what does this company look like for you online? Building out online, locally, building out these referral programs, even more so I've already seen it. And then letting my marketing team do what they're doing. And then, but the bigger plan is online distribution online. I bought, I told you, I bought all this like tech stuff that some guys recommended, Mike Fiora on Twitter did. And I'm going to crush man. Yeah. I'm going to build, build out TikTok and then more on Twitter as well. And then whatever content else I can put out there. So build out online, selling online, but also Twitter, et cetera.