Skip to main content

How Costco makes money, explained

From merchandise sales to membership fees, here's a closer look at Costco's financial success in 2022

Whether you enjoy shopping in bulk or want to save money during your weekly grocery run, Costco provides a unique retail experience unlike any other. From the megalithic warehouse of goods and the plethora of bulk items to stock your pantry to the samples of its latest products and its astounding customer service, Costco is a superstore that has seen incredible success and popularity.

But how does Costco make money? Today, we’re taking a closer look at the Costco business model and the company’s financial data.

Related Videos
Costco's economics chart from Reddit showing Costco's 2022 fiscal year spending

A small percentage of profit comes from merchandise

Costco celebrated the end of its 2022 fiscal year with a net sales increase of 16%. However, Costco doesn’t make the majority of its net income from merchandise sales. As you can see in the chart above, which came from this Reddit post, Costco has $199.3 billion in merchandise costs and $19.8 billion in administrative fees. From Costco’s annual report, we can see that after all expenses are accounted for, the company makes only a small percentage of profit from its merchandise sales alone. So how does Costco make money?

Person grocery shopping with a Costco membership

Memberships are the key reason for Costco’s success

Memberships are the main contributor to Costco’s running success. While the chart above shows memberships account for 2% of Costco’s revenue, it’s important to keep in mind that this club model offers something more valuable than profit alone. It allows the company a greater sense of security.

Costco’s unique membership model creates customer loyalty. Consumers can opt into a Costco membership and pay a yearly fee, starting at around $60. This helps Costco have a steady stream of loyal consumers who continue to shop at its stores.

While other large retailers like Walmart have to worry about continued merchandise sales growth, Costco can rely on its memberships and loyal customer base of returning buyers. Since many consumers value the ability to buy products in bulk for more affordable prices, it’s easy to see why people continue to come back to this superstore.

Crowded checkout line at a warehouse grocery store

Costco doesn’t spend a lot on advertising

Another interesting thing you’ll note from the chart above is that Costco doesn’t have any advertising costs listed. Instead, Costco relies on word-of-mouth advertising, meaning avid customers part of the Costco membership tell their friends and families about the amazing deals they’re finding during their weekly grocery run. This allows new members to sign up daily if they’re interested in finding similar bargains.

Costco does spend money on coupons and member advertisements, but it’s virtually nothing compared to the advertising expenses of Costco’s competitors. According to Investopedia, “Walmart spent $3.2 billion on advertising in 2021. Target spent more than 2% of its revenue on marketing.”

With little to no advertising costs, Costco can instead focus on growing its membership and using that income to sell merchandise for lower prices than its competitors. This model has led to Costco’s financial success and consumer popularity. As the company continues to expand, new members are joining each day for the bulk supplies to stock up their pantries.

Editors' Recommendations

The 9 tips pro shoppers wish they knew their first time shopping at Costco
Shopping at Costco is easy with this handy guide
tips for first time shopping at costco interior

Shopping at Costco is not for the faint of heart. The aisles are massive, the weekend crowds are huge (which is why you should consider weekday trips), and there’s just so much to look at. It’s pretty inevitable: You go in expecting to buy a rotisserie chicken and some frozen foods, and somehow you also walk out with a TV, a few new sweaters, and Christmas decorations you’re not 100% sure you need. If it’s your first time shopping at Costco, it can be a little overwhelming. Luckily, a few pros recently took to Reddit to share their best tips for Costco shopping.

1. Always get a cart
“Always, always grab a cart when you go in, even if you’re convinced you’re only getting one thing,” warned lead_injection.
2. Get the rotisserie chicken
 User iWillNeverReplyToYou put it succinctly: "1. Always get a rotisserie chicken. 2. Never not get a rotisserie chicken.”

Read more
Revealed: The Costco deals pro shoppers never pass up
These are the best Costco membership deals, according to real shoppers
Costco store exterior shot

Not all deals are created equal when it comes to wholesale retailers like Costco. We all know that there are some deals you should always jump at (Costco rotisserie chicken, we’re looking at you), and other deals best left on the shelves.

But what are the absolute best Costco deals? Pro shoppers answered that for us. In a recent post on the r/Costco subreddit, Redditor gonja619 related a conversation with a Costco worker on a recent shopping trip.

Read more
The secret Costco rotisserie chicken deal only pros and super fans know about
Love Costco chicken? With this life hack, you'll love it even more
what to buy at costco kirkland rotisserie chicken

Chicken is a fan-favorite food, and for good reason — from barbecue chicken to chicken quesadillas to chicken parmigiana, it’s a lean protein that serves as the centerpiece for so many different meals. Consider this: In the early 1970s, per capita poultry consumption in the U.S. was almost 50 pounds; these days, it’s more than 100 pounds per person.

Of course, chicken hasn’t evaded the raging inflation that’s hiking up expenses every time we go to the grocery store (or gas station, shopping mall, or — well, just about anywhere.) According to the USDA, wholesale poultry prices are predicted to increase between 19-22% this year.

Read more