Why are LED lamps much more energy-efficient than incandescent lamps?

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How does an LED bulb work?

In light-emitting diodes (LEDs), electricity passes through semiconductor material, sparking up light-emitting diodes, while a heat sink absorbs the small amount of heat produced. The initial cost of LEDs is much higher than incandescent lamps.

How incandescent lamps (light bulbs) work?

An incandescent light bulb has a wire filament heated to such a high temperature (by using electricity) that it glows with visible light.

Therefore LED lamps are much more economical because:

Unlike incandescent bulbs, most of the energy used by an LED generates light. (More than 95% percent of the energy used by incandescent bulbs escapes as heat). Therefore, much less energy is needed for the same light output!