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Business Operations Business Models

How Does Costco Make Money (Business and Revenue Model)

The Costco business model

How Does Costco Make Money?
Here’s what you should know:
  • What is Costco, and how does Costco work?
  • How does Costco make money?
  • Merchandise Sales (In-Store)
  • Membership Fees
  • E-commerce Sales
  • Costco’s Subsidiaries, Acquisitions, and Exits
  • Citi and Visa Partnership
  • Costco’s profit and revenue
  • What is the Costco business and revenue model?
  • Costco’s funding and market cap

How does Costco make money? Here is a full, in-depth, breakdown of their three (3) revenue streams and the different products and services they offer, as well as the Costco business model, their year-over-year revenue, and how Costco works.

What is Costco, and how does Costco work?

Costco is a membership-only wholesale big box retailer operating in more than 800 warehouse clubs worldwide.

How Costco works is: To shop at Costco, shoppers must have a membership. Once a shopper purchases an annual membership to the “club”, they can purchase in bulk at discounted wholesale rates at more than 800 stores worldwide.

Founded in 1983 by James Sinegal and Jeffrey Brotman, Costco is now the 14th largest company by revenue in the United States as of FY 2020.

Some of Costco’s competitors include BJ’s, Walmart, Sam’s Club, and other wholesale big box retailers.

Costco App in Apple App Store | Costco Business Model | How Does Costco Make Money?
Source: Apple App Store

How does Costco make money?

With more than 105.5 million members and 810 warehouse stores worldwide, how does Costco make money?

Below is a breakdown of how much money Costco makes and its revenue model. Including all revenue streams and how much they charge for their services.

Here are the 3 ways of how Costco makes money (in 2021):

Costco has a revenue model that makes money in three (3) ways – merchandise sales, membership fees, and e-commerce sales.

#1. Merchandise Sales (In-Store)

Costco makes the majority of its money from in-store merchandise sales. These goods fall into the following categories: Food and Sundries, Hardlines, Fresh Foods, Softlines, and Ancillary.

Roughly $153 billion or 91.78% of Costco’s total revenue of $166.7 billion came from in-store merchandise sales in 2020.

To date, Costco has over 800 warehouse stores worldwide and carries, on average, around 3,700 active stock keeping units (SKUs) per warehouse – earning them roughly 192 million per year per warehouse, according to Statista.

Note: 91.78% of Costco’s total revenue came from in-store merchandise sales in 2020.

#2. Membership Fees

Those who have been to Costco know you need a membership to take advantage of their wholesale deals. And to date, Costco has more than 105.5 million active members.

Contrary to what some might think, Membership fees made up just 2.1% of Costco’s total revenue in 2020.

Costco Membership Cost:

  • Gold Star Membership: $60 per year
  • Gold Star Exclusive Membership: $120 per year
Costco Membership | Costco Business Model
Source: Costco

Note: Membership fees made up just $3.54 billion or 2.1% of Costco’s total revenue of $166.7 billion in 2020.

#3. E-commerce Sales

Costco started selling online through its e-commerce store at costco.com on April 17, 2001. They average anywhere from 8,000 to 10,000 SKUs online. Which is much larger than their 3,700 in-store inventory.

According to Costco’s 2020 Form-10K, “Net sales for e-commerce represented approximately 6% of total net sales in 2020” – which is approximately $9.8 billion in revenue.

Costco’s Subsidiaries, Acquisitions, and Exits

To date, Costco Wholesale Corp. has made a total of 1 acquisition, 2 investments, and 1 lead investment.

Citi and Visa Partnership

In March 2015, Costco entered into a long-term credit card partnership with Citi and an incentive agreement with Visa.

Visa and Citi are some of the largest credit card issuers in the United States with 336 million cardholders and 95 million cardholders, respectively.

This deal put an end to the 16-year partnership between Costco and American Express back in March 2016.

Costco partnership | How Does Costco Make Money?
Source: Costco

Costco’s profit and revenue

In 2020, Costco reported $166.7 billion in revenue.

Note: Because Costco Wholesale Corp. is a publicly traded company, under the Securities Exchange Act of 1934, they must file continuous financial filings with the U.S. Securities and Exchange Commission (SEC). You can find all of Costco’s publicly released financial reports, including annual reports, through Costco’s investor section on their website.

What is the Costco business and revenue model?

Costco makes money through a few revenue models that they combine within their company, they are:

  • Transaction based business model
  • Membership business model
  • B2B2C (partnerships) business model
  • Mergers & acquisitions (M&A) business model

Costco’s funding and market cap

Costco has a market cap of $183 billion as of July 2021.