ECONOMY STUDIOThe Costco hot dog and soda combo has cost $1.50 since 19851. In May 2024, the company’s new chief financial officer said on his first earnings call that the price is safe2. The rotisserie chicken sells for $4.99, and a former finance chief said in 2015 that Costco was willing to give up $30-40 million a year in gross margin to keep it there3.
That only makes sense once you see where Costco’s profit really comes from.
Follow $100 through a Costco warehouse
Costco’s net sales were $269.9 billion in fiscal 2025, up 8.1% from the year before4. Here is where a typical $100 of those sales goes.
Paying suppliers for the goods takes $88.885. Running the warehouses, from wages to electricity, takes another $9.256. That leaves $1.87 from selling the goods themselves7.
Put another way, Costco’s gross margin, what it keeps after paying for the goods, was 11.12% of sales6. Costco is widely reported to cap its markups at about 14% on national brands and 15% on its own Kirkland Signature label, although it has never published those limits8.
The real product: the card
Now look at membership fees. Costco collected $5.3 billion in fees in fiscal 2025, up from $4.8 billion the year before9. That works out to $1.97 for every $100 of sales5, more than the $1.87 left over from selling goods7.
Costco’s operating income was $10.4 billion, and membership fees were about 51% of it5. Selling goods brought in the other $5.06 billion5. Costco sells almost at cost and charges for the right to shop.
Why people keep paying
At the end of fiscal 2025 Costco had 81.0 million paid members and 145.2 million cardholders10. Members renew at a rate of 92.3% in the US and Canada, and 89.8% worldwide11.
On September 1, 2024, the US and Canada fees rose from $60 to $65 for Gold Star members and from $120 to $130 for Executive members, the first increase since 201712. The increase accounted for about 40% of the growth in membership income in 20256.
Executive members matter most. There were 38.7 million of them, and they accounted for about 73.6% of worldwide net sales11. They earn a 2% reward on qualifying purchases, generally up to $1,250 a year, so the extra $65 for the upgrade pays for itself at $3,250 of qualifying spending13.
Fewer items, bigger stores
A Costco warehouse carries fewer than 4,000 active items11. The average US supermarket carried 31,704 in 202314. Fewer items means bigger orders of each one, and more buying power with suppliers.
Costco operated 914 warehouses at the end of fiscal 2025, averaging about 147,000 square feet each11. It even built its own chicken complex in Fremont, Nebraska, which opened in 2019 at a reported cost of about $450 million15. The chicken still sells for $4.993. Its own Kirkland Signature products generally earn higher margins than national brands16.
So how does Costco make money?
Costco sells goods at a thin margin and charges an entry fee. The goods leave $1.87 out of every $1007; the fees bring in $1.975. Low prices keep members renewing, and the renewals are the profit.
