Costco Caps Markups at 14% and Generates $4 Billion in Membership Fees
Costco caps markups at 14% on core items, limits SKUs to about 4,000 and uses bulk buying to keep costs low, while generating roughly $4 billion in annual membership fees from 110 million cardholders that account for 80% of operating profit. Its Kirkland label, at 25% of sales, enhances margins.
1. Membership Fee Revenue Model
Costco collects about $4 billion in annual membership fees from 110 million cardholders, representing roughly 80% of operating profit and delivering high-margin, recurring income that buffers retail margin volatility.
2. Low Markup and SKU Strategy
The retailer limits product markups to 14% on core items and restricts SKUs to about 4,000, leveraging bulk purchasing and streamlined distribution to secure steep supplier discounts and maintain industry-leading price competitiveness.
3. Private Label Kirkland Strength
Kirkland Signature products account for 25% of total sales, offering higher margins than national brands, reinforcing member loyalty and boosting overall profitability through strategic manufacturing partnerships.