The 1 Reason Costco Doesn't Care How Much Money You Spend

My family recently signed back up for a Costco membership by snagging a great Groupon deal. We paid the usual $60 price for the Gold Star membership but received a $45 store gift card, essentially bringing the cost down to just $15.

We're trying out the membership again, after not utilizing it fully the first time we had it. I'm curious to see if we can save on our groceries and other essential items, compared to shopping at other stores. Most members spend an average of $150 per Costco run, and while that may seem like a substantial sum, Costco may be less interested in your grand total than you might think.

That's because the bulk of what Costco earns each year comes from membership fees and not its merchandise sales.

It's all about the memberships

Costco earns significant revenue from sales of its food, clothing, electronics, and other products. For example, in Costco's fiscal 2022, the company's sales were over $222 billion, while its total expenses were about $219 billion.

Some basic back-of-the-napkin math shows that the company would only have about $3 billion in net income ($222 billion minus $219 billion) if that's all that it earned for the year. Instead, Costco reported net income of $5.8 billion for the year. So, where did the extra money come from?

It came from more than $4 billion in membership fees Costco earned in the year.

While Costco does have costs associated with maintaining its memberships (so not all of the membership fees equal pure profit) it still generates most of the company's profits because there's minimal overhead Costco has to pay to acquire members and keep them.

The good news for Costco is that once it gets a member, they usually stick around -- the company's membership renewal rate was nearly 93% earlier this year. And to keep those membership fees coming in, the company began cracking down on membership sharing not that long ago.

How to save money with your Costco membership

While Costco may not be all that interested in how much you spend in its stores, you likely are. And if you're looking to get your personal finances under control, there are a few ways that you can maximize your trips to the membership club:

• Score a good deal on a membership: Costco memberships start at $60, but you can sometimes get a great deal through a coupon app. As I mentioned above, my Gold Star membership was $60, but I received a $45 Costco gift card when purchasing the membership through Groupon.
• Keep an eye on upcoming discounts: While Costco is known for its discounts on bulk purchases, the company also has specific deals each month. You can find out which are the best deals by looking through Costco's monthly coupon book.
• Use a Costco credit card: You can earn cash back on your Costco purchases using the Costco Anywhere Visa® Card by Citi. The card gives you cash back on everything from gas and EV charging, in-store and online Costco shopping, restaurants, and other eligible purchases.

Keep this in mind when considering a membership

While Costco has the potential to save you money, a membership to the warehouse club may not be for everyone. I had a membership before and discovered it didn't help my family save money because we weren't using all of Costco's perks.

I'll be more strategic about how we use the membership now to maximize our savings, but you'll need to figure out if the membership club will work for you. One way you can do this is by going to Costco with a friend and doing a test-run shopping trip.

I'll be keeping a close eye on whether shopping at Costco saves me money, but considering that I'm already a member, it's statistically likely I'm going to be sticking around for a while.