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When you run out of milk or bread and need to run to your local grocery store on a whim, there won't be an employee at the door asking you to show a membership card. By contrast, if you want access to Costco, you'll need to pay for a membership, the cost of which varies based on the type you choose.
A basic membership at Costco costs $60 a year. An Executive membership costs $120, but in exchange, you get to earn 2% cash back on your Costco purchases. If you spend more than $3,000 a year at Costco, the Executive membership makes financial sense.
Now, some people refuse to pay any sort of fee to get into Costco. And if you're in that camp, it's understandable. After all, you don't have to pay to get into a regular supermarket, Walmart, or Target. Why should you pay a fee simply to pad a retailer's bottom line?
But while it's true that membership fees are a huge driver of revenue for Costco, those fees are actually worth paying. Here's why.
When your membership fee benefits you
Over the past year, Costco brought in almost $4.6 billion in membership fees. And those fees represent 72% of the company's profits.
But before you get angry at that number, realize this. The whole reason Costco is able to offer such competitive prices is that it uses the revenue it collects in membership fees to offset its costs. And if you use your membership enough, you may find that your fee is more than worth paying.
Let's say you shop at Costco twice a month and save $20 on each visit compared to what you'd spend at a supermarket or big-box store. Let's also assume you only have a basic membership. This means you're spending $60 to save $480. So all told, you're coming out ahead by $420.
If you're someone who doesn't tend to shop at Costco often, then you'll need to assess whether your membership fee is worth paying. Chances are, you're not going to get value out of your fee if you only go to Costco once or twice a year (though it's possible that your membership will still pay in that case if each visit has you bringing home a giant haul).
But if shopping at Costco saves you money, then you may not want to grumble about the fee. Or, go ahead and grumble about it, but keep paying it if that's what makes financial sense for you.
Will Costco fees go up soon?
It's been more than six years since Costco raised its membership fees. And on the company's most recent earnings call, CFO Richard Galanti said "it's a question of when, not if," with regard to a fee hike.
But for now, Costco isn't making plans to raise its membership fees. And chances are, a change like that won't arrive until 2024 at the earliest. It's unlikely that Costco would raise fees leading into the heart of the holiday season and risk alienating consumers at a time when retailers are vying for their business.
But even if Costco opts to raise fees in 2024, chances are, it'll still make financial sense to keep your membership. And while you may not relish the idea of paying more, the silver lining is that a modest fee hike could lead to even more money you can add to your savings account.
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We're firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers. The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.Maurie Backman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Costco Wholesale. The Motley Fool has a disclosure policy.
