Comment by throw0101c
21 hours ago
Always found Costco's largest source of profits interesting:
> Revenue from membership fees accounts for the majority of the company's profits, accounting for over 72% of the company's net operating income in fiscal years 2022 and 2023, and 65.5% in fiscal year 2024.[115][a]
The sentence you quoted from Wikipedia is nonsensical.
Comparing one revenue line to total net profit is a category error: the numerator and denominator measure different things.
In FY2024, Costco did $249.6B in net sales and collected $4.8B in membership fees. Gross margin on product sales was about $25B. That $25B is 5x the membership fee revenue. So, even if you consider membership fees as being free money, membership fees are only 16% of gross margin.
Moreover, without those product sales, the membership would be worth zero and no one would buy it.
Agreed it's a weird comparison, but I'd argue SG&A needs to come out of gross margin too for a fair comparison. You need a warehouse/staff/utilities/etc to sell merchandise, you need nothing to sell a membership (whether it's worth anything is another question of course).
In their 2025 filing, gross margin on merchandise was $30B, but SG&A cost $25B (with membership fees at $5.3B).
Note that $2.6B of those membership fees will go back to members as membership rewards, which is interesting too.
> The sentence you quoted from Wikipedia is nonsensical.
¯\_(ツ)_/¯
Feel free to click "edit" and fix it: that's kind of the whole point of Wikipedia. :)
It's a great model. We get the benefit of low prices, they get sustaining revenue that allows us to get those low prices.
I always found that weird because we get like 5x our membership dues back in rewards every year, so I guess we're the exception, rather than the rule?
The claim could be true even if every customer is exactly like you. The implication is that Costco doesn't really make money selling stuff, they just need to roughly break even. And "breaking even" here includes paying rewards on purchases. The fact that you earn a lot of rewards doesn't stop your membership dues from contributing to Costco's bottom line.
> The fact that you earn a lot of rewards doesn't stop your membership dues from contributing to Costco's bottom line.
It could also be similar insurance floats: premiums and claims generally even out, but they make their returns while they're holding people's money.
(Perhaps it's explained in their financial statements, but I've never been curious enough to check.)
Plus every manufacturer discount is technically advertising revenue for Costco (or any retailer).
Affiliations with providers of products like insurance, bottled water delivery, checks and the credit card are also sources of revenue.
If you have an executive membership they guarantee that you make back your membership dues. If you fall short you can just ask them to give you the difference (and then they will downgrade you to the regular membership).
But also remember regular members don't get cash back. The ratio is about 50/50. So about 40 million people pay for membership and don't get cash back.
> If you have an executive membership they guarantee that you make back your membership dues.
That's not quite their policy - their explicit policy is "The Reward is not guaranteed to be equal to or greater than the Executive upgrade fee paid." - but they will refund you if you ask for it.
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Could be like gym memberships: where there's a population of folks that pay but don't make use of it (and don't bother cancelling).
The only year I broke even-ish on my executive membership was the year I bought an expensive engagement ring. All other years I (household of 3-4) went below break even. I lived 1/4th of a mile across the highway from them even. I just couldn’t make it work.
Then why keep signing up? You clearly don’t need the bulk quantities, so why put up with that inconvenience?
To justify the subscription I made the commitment to buy all my necessities there that I could, and in return I get back the equivalent of a month’s worth of free groceries.
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The membership has another impact on the balance sheet. It not only adds revenue, it also cuts loss from shoplifting