Memberships drive Costco‘s business.
“The most important item we sell is the membership card,” Costco CEO Ron Vachris told Fortune.
Costco also makes much of its profit from selling memberships, since it sells most of its merchandise at very low margins.
Members “keep coming back because they know Costco will pass savings on to them,” creating a model where membership income helps fund low prices and those low prices drive renewals, according to The Motley Fool.
“Shoppers pay an annual fee to join, and in fiscal 2025 (year ended Aug. 31, 2025), these fees generated $5.3 billion in revenue. And since the costs of running this membership are minimal, nearly all of that goes straight to the bottom line,” The Motley Fool’s Lawrence Nga wrote.
The warehouse club has seen its membership revenue rise, partially because of its Sept. 1 membership fee hike, and partly by adding new members.
Its renewal rate, however, fell, and that’s tied to a feature many members don’t know about — “set it and forget it” auto-renewal.
A quick look at Costco’s membership numbers
“We reported membership fee income of $1.355 billion, an increase of $162 million or 13.6% year-over-year,” CFO Gary Millerchip said during the warehouse club’s second-quarter earnings call. “The September 2024 U.S. and Canada membership fee increase accounted for about one-third of our membership income growth.”
Numbers would have been strong even without the increase from $60 to $65 for Gold memberships and $120 to $130 for Executive memberships.
“Excluding the membership fee increase and FX, membership income grew 7.5% year-over-year. This was driven by continued growth in our membership base and upgrades to executive memberships,” he added.
- At Q2 end, Costco had 40.4 million paid executive memberships, up 9.5% versus last year.
- The chain ended the quarter with 82.1 million total paid members, up 4.8% versus last year, and 147.2 million cardholders, up 4.7% year over year.
- In terms of renewal rates, at Q2 end, Costco’s U.S. and Canada renewal rate was 92.1%, down 0.1% from last quarter, and the worldwide rate came in at 89.7%, unchanged from last quarter.
“The slight decline in the U.S. and Canada renewal rate was due to the factors we have discussed in prior quarters and reflects new online members growing as a percentage of our total base and renewing at a slightly lower rate than warehouse sign-ups,” he shared.
That’s partially an auto-renewal problem because the chain’s growing number of members who join online don’t opt into auto-renewal at the same rate as members who sign up in a warehouse. This has explained the chain’s slightly lower renewal rates.
Costco offers auto-renewal opt-in
When you join Costco in a warehouse, you have the option of setting it to auto-renew. That’s not part of the online membership process, and people who join that way have to manually change the settings on their account.
It’s not at all complicated, but online members enable auto-renew at lower numbers than members who join in a Costco store. That’s something the company has been working on.
“The auto renewal is something we’ve been focused on for some time. We believe as more members have grown over time, there’s a real benefit in helping the member from a convenience point of view, having auto renew. And of course, it helps us with membership renewal rates as well,” Millerchip added.
Related: History of Costco: Company timeline and facts
How to set your membership to auto-renew
- Go to Costco.com and select Sign In/Register in the upper-right corner of the page (just make sure your membership is verified beforehand).
Proceed to the next step if you are signed in and see “Account” to the left of Orders & Returns. - Under “Account,” choose Renew Membership.
- Add, remove, or select a Visa or Mastercard card for Auto Renew.
- For the automatic renewal of your membership, check the box to confirm your consent of the following:
Your Costco membership fee will renew automatically and be charged annually on the first day of your renewal month until you choose a different form of payment or cancel Auto Renewal from your Costco membership.Future membership fees will be charged based on your membership level.
Membership fees are subject to change. If you wish to cancel Auto Renewal or pay your Costco membership fee using a different method of payment, you can visit a Costco membership counter or access your membership account on Costco.com. You may also chat with Costco Member Services or call 1-800-774-2678 at least 72 hours prior to the first day of your renewal month.
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Costco’s membership numbers are strong
While people may consider whether to keep Netflix, or if they really need to renew their Disney World annual pass, most Costco customers know whether the membership is a value. If you visit the chain regularly, nearly anyone would save enough money to make auto-renewal a good idea.
“Costco’s 2.96% profit margin on merchandise sales looks anemic until you realize membership income grew 14% year-over-year. That high-margin recurring revenue subsidizes razor-thin retail pricing, which keeps members renewing. It’s a flywheel, not a treadmill,” 24/7WallSt.com wrote.
The warehouse club’s business model is well-positioned for a struggling economy, even with the fee to access its stores.
Bernstein analysts named Amazon, Walmart, and Costco as “best positioned to ride a macro storm” due in part to the revenue they generate from “membership lock-in,” Investopedia reported.
“Their focus on value and consumer staples could also help them take market share if macro conditions worsen,” Bernstein added.
Costco’s pay-upfront-to-join model actually drives loyalty.
“Unlike most brands that reward repeat purchases with points or discounts, Costco takes a counterintuitive approach: It asks customers to pay upfront for the privilege of shopping. And rather than weakening commitment, this model appears to strengthen it year after year,” according to BLOY Loyalty.
