Costco makes some of its profits from its merchandise, but the bulk of its profits come from membership dues. Only members can shop at Costco. The membership business model allows Costco to undersell the competition by offering products in bulk at lower prices to ensure customer loyalty.
Membership fees brought in $4.8 billion in the previous fiscal year, which ended Sept. 1, 2024, and $1.5 billion for the previous three months, the company reported in September. The company said it now had 77.4 million paid memberships, an increase of 7.6%. Nearly half (47%) were executive memberships.
Costco is a membership-only warehouse which generates a majority of its profits from membership fees and a small percentage from retail sales. Customers must buy memberships to access the warehouse and make purchases. This is executed through the direct sourcing and efficient inventory management techniques.
Why does Costco charge an annual membership fee? We strive to give our members the best products at the lowest possible prices, and our membership fee allows us to offset many of our operating costs and price our merchandise lower.
Costco net profit margin for the quarter ending November 30, 2024 was 2.93%. Costco average net profit margin for 2023 was 2.6%, a 0.39% increase from 2022. Costco average net profit margin for 2022 was 2.59%, a 2.78% increase from 2021. Costco average net profit margin for 2021 was 2.52%, a 5% increase from 2020.
Costco's new CEO, Ron Vachris, received a total compensation package worth $12.2 million this year, according to the company's latest proxy statement filed Wednesday with the SEC.
Costco Wholesale Corp's (COST) main competitors in the highly competitive retail market of large discount stores include Walmart Inc. (WMT) and Target Corporation (TGT).
Costco has been clamping down shoppers using membership cards that don't belong to them. There are still ways to shop without a membership: online, with a gift card, or as a member's guest. The extra charges and hassle of workarounds can quickly add up to more than the annual fee, though.
This permits Costco to do what no other grocery store could previously do, which is sell their items at a price so low that they break even. So all the money that Costco earns is mainly membership fees, as their merchandise is either break even or a tiny profit margin and many of their items are in the red.
As of 2025, Costco does not offer a specific discount for seniors on either memberships or in-store purchases. The starting price of a Costco membership is $60 per year, paid in one lump sum. Costco discounts on hearing aids, gas, and general merchandise make a membership worth it for seniors.
1? Costco sells over a billion rolls of toilet paper a year, and that in turn brings in almost a half a billion dollars in revenue. This TP is so popular for two reasons. First, it's a bargain.
Costco has 584 locations, and 23% of them are in California. The California cities that house the most Costco locations include San Diego and San Jose, both of which boast sizeable household incomes. According to 2022 census data, San Diego's household median income is $89,457 and San Jose's is $125,705.
73% of Costco's gross profit comes from its membership fees. Membership fees make up 2% of revenue, yet contribute 73% of gross profit. That was stunning to me. And Costco in the last 10 years has almost doubled its membership while retaining a 90% renewal rate.
Costco earns about 73% of its profits from membership fees. That's a good sign for Costco shoppers' bank accounts, because it means the store really is trying to offer the best possible deals at the lowest prices.
Fun facts about Costco: employees are not commissioned. I work in membership, and my job is to help people sign up for a Costco membership. There are different price points and no, we do not get any kind of commission for enrollments. A lot of people seem to think we do.
New Entry Rules
And if the card doesn't have such a code or picture, the prospective shopper will be required to show a photo I.D. In addition, non-members will not be able to enter the store unless accompanied by a Costco member.
“If you look at Costco, you have to realize they're using these membership fees to pay for the rest of their goods.” More fees, more profits: As Taylor pointed out, membership fees generated $4.5 billion in revenue in 2023, which is 72% of its total income of $6.3 billion.
Costco has increased prices of pizzas and other items at its food courts. But Costco has a unique business model that allows it to keep prices low: It makes almost all of its money on memberships, selling items on its warehouse floor very nearly at cost – and sometimes less.
Some of the highest wages a worker can make at Costco are in the job titles Registered Pharmacist ($136,000), and title Full Stack Software Engineer ($133,750) which are the highest paying jobs at Costco.
When you visit a Costco warehouse, you'll discover all the valuable savings we have to offer. As a nonmember, you may still purchase prescriptions from a Costco pharmacy with cash, debit, Costco Shop Cards or a Visa® card. However, you must be a paid member to enter the warehouse and purchase any other items.
Costco membership is non-transferrable. This means only you can use your membership card. Each membership comes with two cards, so you can add one member of your household. Otherwise, you're allowed up to two guests while you shop -- but a member must pay at checkout.
And since we know that the Executive membership offers 2% back on purchases, some simple math tells us that your break-even point is $3,250. In other words, 2% of $3,250 is $65, which is the difference between a basic Costco membership and the Executive version.
1? Costco sells over a billion rolls of toilet paper a year, and that in turn brings in almost a half a billion dollars in revenue. This TP is so popular for two reasons. First, it's a bargain.
Costco has more stores across the globe, is expanding rapidly, and generally offers cheaper prices than Sam's Club does, although the latter charges slightly less for membership, has a bigger presence in the U.S., and stocks more name brands.