Why Costco Makes You Pay Before You Buy Anything

How Costco really makes money: the membership fee is less than 2% of its revenue, yet in fiscal 2026 it was equal to about half of Costco's operating income. This episode works through Costco's own filings to explain the Costco business model: how thin the margin on the goods really is, why the membership changes who the low prices are for, how renewals and the Executive membership work (Executive members account for about 75% of sales), and why paying before you buy matters. Subscribe for more breakdowns of how familiar companies really make money. Chapters: 00:00 A store that charges you to walk in 00:34 The warehouse deal 01:18 Two dollars on a hundred 02:00 The other half 02:38 Who the low prices are for 03:26 Nine in ten come back 04:06 The upgrade 04:56 Paid up front 05:41 Raising the price 06:29 The catch 07:05 The whole model Sources: 0:08 Costco membership page — https://www.costco.com/join-costco.html 0:11 Costco FY2026 Form 10-K — https://www.sec.gov/Archives/edgar/da... 4:13 Costco press release, July 10, 2024 (membership fee increase) — https://www.sec.gov/Archives/edgar/da... 5:45 Costco FY2017 Form 10-K — https://www.sec.gov/Archives/edgar/da... 6:23 Costco FY2025 Form 10-K — https://www.sec.gov/Archives/edgar/da... Also used: Costco Q4 and fiscal 2026 results, Sept 24, 2026 — https://investor.costco.com/news/news... Costco Q4 FY2026 supplemental information — https://www.sec.gov/Archives/edgar/da... Costco FY2024 Form 10-K — https://www.sec.gov/Archives/edgar/da... Image credits: Costco warehouse aisle, Waltham MA (2020): ArnoldReinhold / Wikimedia Commons, CC BY-SA 4.0 — https://commons.wikimedia.org/wiki/Fi... Costco self-checkout, San Diego (2020): Mds08011 / Wikimedia Commons, CC BY 4.0 — https://commons.wikimedia.org/wiki/Fi... Costco Auckland walk-through (video): Pretend Walker / Wikimedia Commons, CC BY 3.0 — https://commons.wikimedia.org/wiki/Fi... Costco entrance with membership scanners: Nielsoncaetanosalmeron / Wikimedia Commons, CC BY 4.0 — https://commons.wikimedia.org/wiki/Fi... Fiscal 2026 = the 52 weeks ended August 30, 2026. Some figures are our own calculations from Costco's income statement and are labelled as simplified or illustrative on screen. #Business #Economics #Costco