Costco makes money in two ways: it sells goods at thin margins and it charges an annual membership fee. In fiscal 2026 (52 weeks to 30 August 2026) net sales were $297.2 billion and membership fees $5.9 billion, out of total revenue of $303.2 billion; operating income was $11.7 billion. The fees are a small slice of revenue but a large share of profit, because the merchandise is priced close to cost: Costco’s gross margin on net sales was 11.09% in fiscal 2026.
Net sales were $297.2 billion in fiscal 2026, up 10%. Foods and sundries were the largest category at $116.8 billion, followed by non-foods ($77.4 billion), warehouse ancillary and other businesses ($61.4 billion) and fresh foods ($41.7 billion).
02
Thin margin on purpose
Merchandise costs took $264.3 billion of net sales, leaving a gross margin of 11.09%. Costco says it aims to offer prices it believes are consistently lower than elsewhere, on a limited range that produces high volume and fast inventory turnover.
03
Membership fees
Fee revenue was $5.9 billion in fiscal 2026, against $11.7 billion of operating income. The basic US fee is $65 a year; Executive members pay more and generally earn a 2% reward on qualified purchases.
04
Renewals keep it going
At the end of fiscal 2026 Costco had 84.1 million paid members, and renewal rates were 92.3% in the US and Canada and 89.8% worldwide.
What changed in 2025-26
Fees grew faster than sales
Membership fee revenue rose 11% in fiscal 2026, to $5.9 billion, which Costco attributes to new sign-ups, fee increases and upgrades to Executive membership. Executive members numbered 42.3 million and accounted for about 75.2% of worldwide net sales.
Digital orders, physical warehouses
Digitally-enabled sales, meaning sales started on a digital device whether fulfilled from a warehouse or a distribution centre, plus Costco Travel, were 11% of total net sales in fiscal 2026. Costco runs e-commerce sites in the US, Canada, Mexico, the UK, Korea, Taiwan, Japan, Australia and China.
Private label as a margin lever
Costco’s 10-K says its Kirkland Signature products are generally priced below national brands and generally earn higher margins, and that it expects to keep raising their share of sales.
AI on the risk list
The fiscal 2026 10-K says Costco must monitor technology trends including the evolution of artificial intelligence, that failing to adopt them could hurt its ability to compete, and that the autonomous nature of AI raises challenges with third-party systems.
Costco revenue by source, fiscal 2026
Foods and sundries
Fiscal 2026$116.8B
Fiscal 2025$109.6B
Non-foods
Fiscal 2026$77.4B
Fiscal 2025$71.2B
Warehouse ancillary and other businesses
Fiscal 2026$61.4B
Fiscal 2025$51.2B
Fresh foods
Fiscal 2026$41.7B
Fiscal 2025$38.0B
Membership fees
Fiscal 2026$5.9B
Fiscal 2025$5.3B
What it means for you
Operators: a recurring fee can fund low prices on everything else, but only if customers renew; track renewal as closely as revenue.
Cut the range: a short list of fast-selling items gives buying power and simpler operations.
Investors: read membership fees next to operating income; in fiscal 2026 they were $5.9 billion against $11.7 billion.
Use a private label where you have trust: Costco says Kirkland Signature lowers prices and earns higher margins at the same time.
Builders: when AI shopping agents compare prices for free, a curator that customers pay to trust is harder to replace than a store that wins on search.
The Business Engineer lens
Costco sells trust in its own price list: members pay a fee so they do not have to compare. As AI agents make comparison shopping cheap, a model built on curation and renewal is more defensible than one built on traffic.
Mostly from selling goods at thin margins ($297.2 billion of net sales in fiscal 2026) plus annual membership fees ($5.9 billion), against $11.7 billion of operating income.
Does Costco make most of its money from memberships?
Not its revenue: fees were $5.9 billion of $303.2 billion in fiscal 2026. But they are large relative to profit, because merchandise carries an 11.09% gross margin.
How much is a Costco membership?
The annual fee is $65 in the US and varies in other countries; Executive membership costs extra and generally earns a 2% reward on qualified purchases.
What is Costco's renewal rate?
92.3% in the US and Canada and 89.8% worldwide at the end of fiscal 2026.
Video: Costco FY2026: where the money went, from revenue to net income, animated to scale from the company's SEC filing. Analysis by The Business Engineer. Captions on screen; tap for sound.
How we source: figures on this page come from the company’s own filings (SEC 10-K, 10-Q and earnings releases, or its annual report), with the period stated next to each number. Last refreshed October 2026. Our methodology.
Costco makes most of its money from selling merchandise products at low cost, yet in bulk, through its warehouses, which act as stores, and a small, yet much higher margin chunk of revenue comes from its memberships. For instance, in 2023, Costco made over $242 billion in revenue, of which $4.58 billion came from membership revenue.
Key Characteristics of Costco’s Business Model
Membership Fees: Generates revenue through annual membership fees.
Bulk Sales: Focuses on selling products in bulk to lower per-unit costs.
Low Prices: Maintains low prices by minimizing overhead costs and negotiating bulk discounts with suppliers.
Limited Selection: Offers a curated selection of high-quality products to streamline operations and reduce costs.
Importance of Understanding Costco’s Business Model
Understanding Costco’s business model is crucial for entrepreneurs, business managers, and retail industry professionals as it provides insights into effective strategies for cost management, customer loyalty, and competitive pricing.
Cost Management
Efficiency: Emphasizes operational efficiency and cost reduction.
Economies of Scale: Leverages economies of scale to offer lower prices.
Customer Loyalty
Membership Loyalty: Builds strong customer loyalty through membership programs.
Value Proposition: Enhances the value proposition with high-quality products at low prices.
Competitive Pricing
Market Positioning: Positions the company competitively with attractive pricing.
Supplier Negotiation: Uses bulk purchasing power to negotiate better deals with suppliers.
Components of Costco’s Business Model
Costco’s business model involves several key components that contribute to its comprehensive understanding and success.
Market Research: Conduct thorough market research before expanding into new regions.
Adaptation: Adapt the business model to local market conditions and consumer preferences.
Enhance Customer Experience
In-Store Experience: Focus on enhancing the in-store experience with additional services and amenities.
Customer Feedback: Use customer feedback to continuously improve products and services.
Future Trends in Retail and Wholesale
Several trends are likely to shape the future application of Costco’s business model and its relevance to retail and wholesale.
Digital Transformation
E-Commerce Integration: Integrating e-commerce platforms with the warehouse club model to offer online shopping options.
Digital Memberships: Offering digital memberships and enhancing online customer experiences.
Sustainable Practices
Sustainable Sourcing: Emphasizing sustainable sourcing practices and eco-friendly products.
Operational Sustainability: Implementing sustainable practices in operations to reduce environmental impact.
Personalization and Customization
Personalized Offers: Using data analytics to offer personalized promotions and product recommendations.
Customized Services: Offering customized services to meet diverse member needs.
Health and Wellness Focus
Health Products: Expanding the selection of health and wellness products to meet growing consumer demand.
Wellness Services: Incorporating wellness services such as health screenings and fitness programs.
Global Expansion
International Markets: Expanding into international markets while adapting to local preferences and regulations.
Global Supply Chains: Building robust global supply chains to support international operations.
Key Highlights
Revenue Sources:
Costco generates revenue primarily by selling merchandise products at low cost in bulk through its warehouse stores.
A significant portion of its revenue comes from membership fees.
Membership Revenue:
In 2022, Costco’s total revenue was nearly $227 billion.
Bulk Sales and Low Costs:
Costco’s revenue is driven by its unique model of selling products in bulk quantities.
The company offers products at lower prices compared to traditional retailers.
Warehouse Stores:
Costco operates warehouse stores that function as its primary sales outlets.
These stores provide customers access to a wide range of products in bulk quantities.
Membership Model:
Costco’s membership model allows customers to pay an annual fee to become members.
Members gain access to exclusive deals, discounts, and benefits.
Membership Fee Impact:
Membership fees contribute to Costco’s revenue and profit, while also fostering customer loyalty.
High Margin Membership Revenue:
Membership fees represent a smaller portion of revenue compared to merchandise sales.
However, they generally have higher profit margins, contributing positively to the company’s overall financial health.
Business Model Element · Analysis · Implications · Examples
Value Proposition
Analysis: Costco’s value proposition centers on providing customers with access to a wide range of high-quality products at competitive prices. It offers a membership-based shopping experience that includes bulk purchasing, exclusive member benefits, and a commitment to quality and value.
Implications: Offers customers cost-effective shopping options. Attracts loyal members with exclusive benefits. Emphasizes quality and value in its product offerings. Appeals to families, businesses, and individuals seeking savings and a wide product selection.
Examples: – Costco’s membership includes access to bulk quantities of products, allowing customers to save money on everyday essentials. – Exclusive member benefits, such as cashback rewards and travel discounts, enhance the shopping experience. – Costco’s Kirkland Signature brand represents quality and value across various product categories.
Customer Segments
Analysis: Costco serves a diverse customer base, including families, individuals, small businesses, and organizations. It caters to customers looking for savings on groceries, household items, electronics, and more. Its business center division serves small businesses and commercial customers.
Implications: Addresses the shopping needs of various customer segments. Attracts both individual consumers and businesses. Supports small businesses with bulk purchasing options. Offers a one-stop-shop for a wide range of products and services.
Examples: – Families and individuals shop at Costco for groceries, household goods, and electronics. – Small businesses use Costco’s business center for bulk purchases and office supplies. – Organizations and institutions may partner with Costco for special events, catering, and bulk orders.
Distribution Strategy
Analysis: Costco operates a network of warehouse club stores with a limited number of SKUs (stock-keeping units). It encourages customers to visit physical stores to shop for bulk products and exclusive deals. It also offers an online platform for members to shop online and access additional products and services.
Implications: Drives foot traffic to physical stores through exclusive deals. Offers an online shopping platform for convenience. Provides members with a seamless omnichannel experience. Attracts customers who prefer in-store shopping and those seeking online convenience.
Examples: – Customers visit Costco’s warehouse club stores to explore bulk offerings, exclusive deals, and in-store promotions. – Members can shop online through the Costco website, accessing additional products, digital coupons, and services. – Costco’s omnichannel approach allows members to purchase items online and pick them up in-store.
Revenue Streams
Analysis: In addition, it offers services such as travel, pharmacy, and optical services, contributing to its overall revenue streams.
Implications: Relies on membership fees as a significant source of revenue. Earns income from product sales across various categories. Diversifies income through additional services. Attracts members seeking exclusive benefits and access to savings.
Examples: – Costco’s membership fees contribute to its revenue, and members often renew their subscriptions to access exclusive benefits. – Product sales, ranging from groceries to electronics, generate substantial revenue. – Services like travel, pharmacy, and optical services offer additional income streams.
Marketing Strategy
Analysis: Costco’s marketingstrategy includes member-exclusive deals, in-store promotions, direct mail marketing, and email campaigns. It emphasizes the value of membership, quality products, and savings opportunities. It also leverages word-of-mouth recommendations from satisfied members to attract new customers.
Implications: Offers members exclusive deals and promotions to enhance value. Engages in direct marketing to communicate savings and offers. Leverages word-of-mouth marketing through satisfied members. Promotes the benefits of membership to attract and retain customers. Attracts customers seeking savings and value.
Examples: – Costco’s in-store promotions and signage highlight member-exclusive deals and savings opportunities. – Direct mail marketing includes monthly coupon booklets sent to members’ homes. – Satisfied members often refer friends and family, contributing to customer acquisition through word of mouth.
Organization Structure
Analysis: Costco operates with a centralized organizational structure that oversees its retail operations, membership services, product procurement, and marketing. It maintains a lean organizational hierarchy to focus on efficiency and customer-centric operations.
Implications: Operates with a centralized structure to streamline functions and decision-making. Emphasizes efficiency in its operations. Maintains a customer-centric approach to enhance member satisfaction. Employs a lean hierarchy to support its commitment to value and quality.
Examples: – Costco’s retail operations team manages the day-to-day operations of its warehouse club stores. – Membership services handle member inquiries, renewals, and benefits. – Product procurement teams source quality products at competitive prices. – Marketing teams create promotions and campaigns to attract and retain members.
Competitive Advantage
Analysis: Costco’s competitive advantage lies in its membership-based model, which fosters customer loyalty and drives recurring revenue. It offers a unique shopping experience with exclusive deals, bulk purchasing, and quality products. It also maintains a focus on efficiency and low operating costs, enabling competitive pricing.
Implications: Builds strong customer loyalty through exclusive member benefits. Offers a unique shopping experience with bulk purchasing and value. Maintains low operating costs and efficient supply chain management. Emphasizes quality and product value. Attracts customers seeking savings and convenience.
Examples: – Costco’s membership model keeps customers engaged and encourages repeat visits to stores. – Exclusive deals and bulk purchasing options enhance the shopping experience. – Efficient operations and supply chain management enable competitive pricing. – The Kirkland Signature brand represents quality and value in various product categories.
Connected · Costco
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Membership fees of $5.9B equal 51% of Costco's operating income. Source: Costco Form 10-K for fiscal 2026 (SEC EDGAR). Shares calculated. Analysis by The Business Engineer.Foods and sundries are Costco's biggest category: $116.8B in fiscal 2026. Source: Costco Form 10-K for fiscal 2026 (SEC EDGAR) (disaggregated revenue). Analysis by The Business Engineer.
Gennaro Cuofano is a CRO and tech executive who has worked in AI since late 2015, starting with bringing NLP, natural-language generation, voice and chatbot products to the marketing industry. His background is in law and finance: he holds a Master's degree in Law and an International MBA with an emphasis on corporate finance (LUISS Business School and the University of San Diego, 2012), and worked as a financial analyst at a real-estate investment firm in San Diego and as an assistant controller. His work focuses on business model strategy, business engineering and, more broadly, structural analysis: how companies make money, read from their own filings. He created FourWeekMBA and leads research there and at The Business Engineer, his newsletter on AI and business strategy, with over 95,000 subscribers and more than 1,000 published analyses. His writing has also appeared on Entrepreneur (for example, How to Digitize a Family Business in Europe) and HackerNoon. Find him on LinkedIn and Substack. See how we source.
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