When you suddenly have to run to the local grocery store when you run out of milk or bread, there will be no employee at the door asking you to show your membership card. By contrast, if you want access to Costco, you’ll have to pay for a membership; The cost of this varies depending on the type you choose.
A basic membership to Costco costs $60 per year. Executive membership costs $120, but in exchange you get 2% cash back on your Costco purchases. If you spend more than $3,000 a year at Costco, a Manager membership makes financial sense.
Some people now refuse to pay any fee to enter Costco. And if you’re in that camp, that’s understandable. After all, you don’t have to pay to get into a regular supermarket, Walmart, or Target. Why pay a fee to increase a retailer’s profits?
But while it’s true that membership fees are a big source of revenue for Costco, these fees are actually worth paying. Here’s why.
When your membership fee benefits you
Last year, Costco earned almost $4.6 billion in membership dues. And these fees represent 72% of the company’s profits.
But before you get angry at that number, understand this. The only reason Costco can offer such competitive prices is because it uses the revenue it collects from membership fees to offset its costs. If you use your membership enough, you may find that the fee you pay is worth paying.
Let’s say you shop at Costco twice a month and save $20 each visit compared to what you’d spend at a supermarket or department store. Let’s also assume you only have the basic membership. That means you spent $60 to save $480. So you’re ahead by $420 total.
If you’re someone who doesn’t tend to shop at Costco often, you need to evaluate whether your membership fee is worth paying. Chances are, you won’t get any value out of your fee if you only go to Costco once or twice a year (but it’s possible your membership will still pay in this case if you bring home a huge load each visit).
But if shopping at Costco saves you money, you may not want to grumble about the fee. Or go ahead and grumble about it, but keep paying if that’s what makes financial sense for you.
Will Costco fees increase soon?
It’s been more than six years since Costco raised membership fees. And on the company’s most recent earnings call, CFO Richard Galanti said of the wage increase that “it’s a matter of when, not if.”
But for now, Costco has no plans to increase membership fees. And most likely such a change will not occur until 2024 at the earliest. Costco is unlikely to raise fares in the heart of the holiday season and risks alienating consumers at a time when retailers are vying for their business.
But even if Costco chooses to raise fees in 2024, it likely makes financial sense to keep your membership. You may not like the idea of paying more, but the good thing is that a modest pay increase can lead to you adding more money to your savings account.
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