Here’s Why Costco Charges a Membership Fee — and Why It’s Totally Worth It

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Annoyed at having to pay Costco membership fees? Read on to see why you shouldn’t be. 

When you walk into your neighborhood grocery store, there isn’t an employee at the door asking you to show a membership card. But Costco works differently. To shop at Costco, you have to show proof of membership. You also have to pay for that membership.

A basic Costco membership costs $60 a year. An Executive membership costs $120 a year, but in exchange for that higher fee, you get to earn 2% cash back on your Costco purchases, including those you make online.

In late September, Business Insider reported that Costco made nearly $4.6 billion in fees for the past year, representing 72% of its profits. When you hear something like that, it might make you resent having to pay a fee to shop at the store. Here’s why that fee shouldn’t bother you, though.

Costco members are still benefiting in the end

Costco is a business, and all businesses have the goal of making money. That said, Costco truly has the goal of offering great value and low prices to its customers. And a big reason it charges the fees it does is to be able to offset its costs enough to make those unbelievably low prices available.

Think about it. Let’s say the cost of eggs at Costco is half of the price for them at your local supermarket. How is Costco pulling that off?

Sure, you can argue that you’re getting that discount because you’re buying your eggs in bulk. But Costco still needs to procure those eggs. And it may not be that much cheaper for Costco to get its hands on eggs than for a regular supermarket chain, since both businesses are likely buying eggs at a high volume.

Rather, a big reason you’ll pay less per egg at Costco, aside from buying in bulk, is that Costco is doing its best to keep the price down. And it can use the revenue it collects in fees to discount its eggs.

This is just one example. The point, though, is that Costco’s business model is very different from that of a regular supermarket. So while you may not love having to pay a fee to join, those fees are what help you snag the amazingly low prices you’ve come to love.

Is it worth it to keep paying those Costco fees?

If you’re annoyed at having to pay Costco fees, one thing you may want to ask yourself is how much value you think you’re getting from your membership. If you don’t shop at Costco very often, or if you find that you’re not getting much of a discount on the things you buy compared to a regular supermarket, then yes, in that case, it may be that those fees aren’t worth paying.

What you should really do is compare your Costco receipts to the prices your go-to supermarket offers. And then calculate how much you stand to save.

Let’s say you shop at Costco once a month and save $20 compared to what you’d spend for the same quantity of items at a regular supermarket. If you multiply that by 12 months, you could be adding $240 a year to your savings account. Subtract your membership fee, and you’re still coming out ahead financially by either $180 or $120, depending on which type of membership you have.

Indeed, most stores do not force customers to pay for a membership every year. But Costco isn’t most stores. And as long as you’re getting good value out of your Costco membership, you really shouldn’t get too upset about having to pay for it.

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The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.Maurie Backman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Costco Wholesale. The Motley Fool has a disclosure policy.

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