How Costco Really Makes Money

About half of Costco's operating profit comes from membership fees, not from selling anything. We follow the money through Costco's own annual report: sales, the thin merchandise margin, the membership fee and the renewal rate. Episode 1 of the series How X Really Makes Money. Next: how Visa makes money on every swipe. Figures come from Costco Wholesale Corporation's annual report on Form 10-K for the fiscal year ended August 30, 2026. Pictures are real photographs: a few show Costco, the rest are generic stock photos of warehouses and supermarkets used as illustration and labelled Stock photo on screen. No AI-generated imagery is used. Chapters: 0:00 The odd math of a warehouse 1:14 The thin slice on every sale 2:31 A member's year begins at the door 3:46 The gas station that draws a crowd 4:59 Fees against merchandise profit 6:11 The Executive upgrade Sources: Costco Wholesale Corporation (filed with the U.S. SEC), Form 10-K for the fiscal year ended August 30, 2026 (2026) https://www.sec.gov/Archives/edgar/da... Derived numbers (calculated from the report's own figures): Membership fees as a share of operating income: fees / opinc * 100 = 5907 / 11685 * 100 Gross margin left after selling, general and administrative costs, before membership fees: gm - sga = 32968 - 27190 Counting or setup number used in the narration, not a sourced figure: 1: illustrative count or step number in the script Counting or setup number used in the narration, not a sourced figure: 297: illustrative count or step number in the script Counting or setup number used in the narration, not a sourced figure: 11.7: illustrative count or step number in the script Counting or setup number used in the narration, not a sourced figure: 264: illustrative count or step number in the script Counting or setup number used in the narration, not a sourced figure: 33: illustrative count or step number in the script Counting or setup number used in the narration, not a sourced figure: 100: illustrative count or step number in the script Counting or setup number used in the narration, not a sourced figure: 89: illustrative count or step number in the script Counting or setup number used in the narration, not a sourced figure: 27.2: illustrative count or step number in the script Counting or setup number used in the narration, not a sourced figure: 5.8: illustrative count or step number in the script Counting or setup number used in the narration, not a sourced figure: 3: illustrative count or step number in the script Counting or setup number used in the narration, not a sourced figure: 5.9: illustrative count or step number in the script Counting or setup number used in the narration, not a sourced figure: 50: illustrative count or step number in the script Counting or setup number used in the narration, not a sourced figure: 84: illustrative count or step number in the script Counting or setup number used in the narration, not a sourced figure: 42: illustrative count or step number in the script Counting or setup number used in the narration, not a sourced figure: 2024: illustrative count or step number in the script Counting or setup number used in the narration, not a sourced figure: 2026: illustrative count or step number in the script Pictures and documents: Photo: Encik Tekateki: Warehouse Interior Storing Batteries in Indonesia (https://commons.wikimedia.org/wiki/Fi..., license https://creativecommons.org/licenses/... Photo: GoToVan from Vancouver, Canada: Food Court of Costco Wholesale (30503545035) (https://commons.wikimedia.org/wiki/Fi..., license https://creativecommons.org/licenses/... Photo: GoToVan from Vancouver, Canada: Food Court of Costco Wholesale (30503545845) (https://commons.wikimedia.org/wiki/Fi..., license https://creativecommons.org/licenses/... Photo: Joe Schneid, Louisville, KY: RotisserieChicken (https://commons.wikimedia.org/wiki/Fi..., license https://creativecommons.org/licenses/... Photo: Matt Johnson: Costco Pizza and Hot Dog (52504855383) (https://commons.wikimedia.org/wiki/Fi..., license https://creativecommons.org/licenses/... Photo: Mds08011: Costco Business Center Sign (https://commons.wikimedia.org/wiki/Fi..., license https://creativecommons.org/licenses/... Photo: Nick Saltmarsh: Distribution centre (J Sainsbury's) (https://commons.wikimedia.org/wiki/Fi..., license https://creativecommons.org/licenses/... Photo: Unknown photographer: Woman grocery shopping (https://commons.wikimedia.org/wiki/Fi...) Photo: Wikideas1: COSTCO gas station (https://commons.wikimedia.org/wiki/Fi...) Photo: thekirbster: Self Checkout at Costco (http