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Brief Summary:Membership fees are a major profit engine for Costco, the world's third-largest retailer by sales. The company's profit on goods is minimal. Instead, Costco uses membership fees as a buffer. Costco’s “Executive” tier is even more profitable, contributing disproportionately to total sales and memberships growth. To protect and grow this revenue stream, Costco has raised membership fees recently and tightened enforcement of membership use.
Costco doesn’t make most of its profit by marking up the prices of products, the most effective way regular stores like Target and Walmart do. Instead, the third-largest retailer by sales makes most of its profits from annual membership fees.
In its fiscal year 2025 results, Costco generated nearly $270 billion in net sales, but merchandise profits remained thin because the company keeps prices very low. Despite this, customer demand is still very high, with shoppers continuing to return and renew their memberships.
That strong customer interest is why Costco was able to record nearly $270 billion in net sales in the last fiscal year. However, Costco noticed that some people were shopping without paying for memberships (using someone else’s card).
Just like Netflix stopped password sharing, Costco decided to enforce its rules more strictly. The company considered tightening its membership policy, with new scanners at the front door and ID checks at self-checkout.
To ensure that only valid members enjoy our exclusive benefits and pricing, we are implementing enhanced verification measures at all locations. These changes help protect the value of your membership while streamlining the shopping experience. These updates aim to prevent unauthorized access, eliminate redundant checks during shopping, and make your visits quicker and more efficient. Thank you for your continued membership and support!
Costco's Updated Membership Policy
This policy now lets all shoppers scan their physical or digital membership card (barcode or QR code) at the front-door scanners before entering the warehouse. This helps to confirm that their membership is still active and in good standing. "A shopper who doesn't have a membership card must be accompanied by a valid member," the policy outlined.
The Low-Margin Strategy and Membership Advantages
Despite selling billions of dollars' worth of merchandise, Costco only accounted for about $5 billion in profits from their actual sales last year after paying for staff, electricity, and other running costs. This is because the company's wholesale strategy relies on very slim retail margins. They kept their products' prices incredibly low, at about 11%.
Meanwhile, this percentage is far less than the 25% to 50% commonly estimated for businesses (like Walmart, Target, and others) selling similar products. While Costco is not moved by this, the real "gold mine" is their membership program.
Last year, Costco earned over $5.3 billion purely from membership fees paid by nearly 81 million households and businesses. Costco only allows two authorized cardholders per household membership. Because this money has almost no overhead cost, it is nearly 100% profit.
In other words, the Costco membership fees effectively let it price goods close to cost in exchange for a loyal base of paying members who shop frequently. Membership renewals, which have rates of 92.2% in the US and 89.7% worldwide as of last quarter, reinforce this revenue model.
Membership Fee Increases and Policies
In addition to the Costco updated membership policy that tightened enforcement of membership use, the company also raised membership fees for the first time in seven years on September 1, 2024, as part of its strategies to protect and grow the revenue stream.
| Membership Tier | Old Annual Fee | New Annual Fee | Annual Increase | Max Reward Limit |
|---|---|---|---|---|
| Gold Star (Individual) | $60 | $65 | $5 | N/A |
| Business | $60 | $65 | $5 | N/A |
| Executive | $120 | $130 | $10 | $1,250 |
The increase affected roughly 52 million memberships across the United States and Canada. Meanwhile, not all memberships are equal. Costco’s “Executive” tier is the higher-priced membership with added perks like cash-back rewards. It's also worth noting that Costco raised the maximum annual 2% reward for Executive members from $1,000 to $1,250.
As executive members get premium perks from their subscriptions, Costco even makes more profits from them. They contribute disproportionately to the company's total sales and membership growth. This tier also increases revenue without needing heavier product markups.
Overall, the price hike is a strategic move to keep shelf prices low, offset rising operating costs, and maintain high service standards—in the sense that the extra revenue, which was estimated to bring in an additional $290 million, will help them maintain their warehouse standards and invest in new locations.
Historically, Costco is known for raising membership fees every 70 months (about 5 to 6 years). But the company delayed this cycle until September 2024 due to the high inflation customers were already facing.
