Decoding Costco’s Business Model in 2025: How It Delivers Value‑Driven Membership Growth

About Costco

Founded in 1983 by James Sinegal and Jeff Brotman, Costco was born out of a vision to offer wholesale goods at unbeatable prices to members. Its unique USP: a membership‑only warehouse model combining low prices, limited SKUs, and treasure‑hunt shopping. As of fiscal year 2024, Costco reported net sales of $249.6 billion with net income of $7.4 billion.

With ~890 warehouses globally and over 140 million members, Costco enjoys widespread scale and strong customer loyalty.

Its core ethos is value first, evidenced by capped markups (no more than 14–15%) and no advertising spend, aligning with its philosophy of member savings over margins. 

Customer experience is characterised by straightforward pricing, efficient stores, and a rotating selection of high‑value products. Members appreciate transparency, quality (especially Kirkland Signature), and low cost. The secret to Costco’s success? A tight‐margin, high‑volume model supported by predictable membership income and operational discipline.

Summary Table

How does Costco make money?

Revenue Stream Breakdown:

Membership Fees (Gold Star & Executive):

• Recurring income from over 140 million members, contributing more than 65% of operating income in 2024.

Product Sales:

• Bulk goods and general merchandise, including food, fresh produce, electronics, apparel, and more, account for ~95% of Costco's revenue.

Private Label (Kirkland Signature):

• Kirkland Signature, Costco’s private label, makes up 33% of total sales, generating around $86 billion in 2024.

Service Revenue:

• Ancillary services such as pharmacy, travel, optical, and gold bullion contribute a smaller portion of revenue. These services serve as traffic drivers with minimal markup.

Revenue Contribution:

• Membership Fees: Account for approximately 65% of operating income.
• Product Sales (Bulk and Kirkland): Contribute around 95% of net sales.
• Services & Others: The remainder of revenue is from various ancillary services.

Pricing Strategy:

Costco employs a low-cost pricing model, with product markups capped at ~14% over cost and ~15% for private label products. This pricing strategy positions Costco as a value leader, attracting price-conscious customers and enabling high transaction volumes, with membership fees playing a crucial role in maintaining profitability and supporting its business model.

Costco Business Model Canvas

Costco Value Proposition

Costco’s unique value stems from its membership‑only warehouse club model, which guarantees access to bulk goods at exceptionally low prices per unit.

This model addresses key customer pain points: affordability and convenience, enabling busy families, small businesses, and value‑driven shoppers to access bulk essentials and high‑quality goods in one stop.

Emotionally, members enjoy a sense of exclusivity and smart‑shopping pride, buoyed by consistent quality and savings. Functionally, Costco delivers speedy checkout, efficient warehouse layouts, and rotating “treasure hunt” merchandise that sparks delight. 

The Kirkland Signature private label ensures trusted quality at lower cost, enhancing confidence. 

Competitively, the firm’s capped markups, zero-advertising policy, and disciplined supplier negotiation create a moat that others cannot easily replicate.

This enables Costco to sustain low prices while fueling high volume and robust membership loyalty, and keeps competitors at bay.

Costco's Revenue Model

Costco’s primary revenue streams consist of membership fees (~65% of operating profit) and bulk product sales (95% of net sales), including its high‑margin private label Kirkland Signature (~1/3rd of total sales).

Ancillary services like pharmacy, travel, gold bars, and optical contribute modestly. Most revenue (~70–75%) comes through U.S. warehouses, with the rest from international and Canadian operations.

In 2024, e‑commerce grew by ~16% of net sales.

This hybrid revenue mix, underpinned by membership income and cost‑efficiency, drives consistent profitability and global expansion.

Costco's Cost Structure

Major expenses include logistics, inventory procurement, warehouse operating costs, wages, and utilities.

Costco cuts costs through minimal advertising, high employee productivity, and centralised procurement.

Bulk purchasing and limited SKU offerings reduce inventory complexity.

The use of private label (Kirkland) enhances margin control. Outsourcing replenishment and automation improves efficiency.

These tactics help keep overhead below ~10% of revenue, preserving narrow margins (~2–3%) and supporting high-volume profitability.

Costco's Customer Segment

Costco operates primarily on a B2C membership model targeting middle‑ to high‑income families, small businesses, and bulk shoppers typically aged 25–50 and value-conscious.

Customers across urban and suburban markets around the world buy in large quantities for personal or small business use.

The model appeals to price-sensitive, loyal consumers who value quality, bulk savings, and an efficient shopping experience.

High renewal rates (>90%) reflect strong trust, while the Executive tier drives ~73% of total sales.

Costco's Distribution Channels

Costco operates physical warehouses (≈890 globally, with ~614 in the U.S.) and a growing e‑commerce platform (~16% of net sales).

It employs an omnichannel strategy, blending in‑warehouse pickup with online ordering.

Additional touchpoints include services like pharmacy, travel, optical, and loyalty offers.

Innovations include membership scanners at entry, click-and-collect options, and in-store early-hours access for Executive members, enhancing flow and customer experience.

Costco's Key Partnerships

Costco partners with major suppliers, Kirkland co‑brand manufacturers, logistics and distribution providers, and technology vendors for membership systems and POS.

It collaborates with local suppliers in international markets for fresh and regional goods.

Key tech partnerships support e‑commerce and scanning systems. 

Through these partnerships, Costco ensures reliable supply, cost negotiation leverage, consistent quality, and operational efficiency.

Additionally, co-branding Kirkland products with trusted labels such as Chinet and Starbucks adds credibility and scale.

SWOT Analysis Of Costco

Competitor Comparison Of Costco