There’s no denying that the Costco membership fee costs a good chunk of change each year. You’re smart for questioning whether or not it’s worth the investment.
Each time a person’s annual membership renews, they’re running at a loss. But, the light at the end of the tunnel is that eventually they will pay off the fee and then be saving money! Right? Well, based on your spending habits, this article will show you without a doubt if you should pay the Costco membership fee.
We’ll also cover things like why club stores charge a fee, what the Costco membership fee costs, common complaints, if you choose BJ’s Wholesale Club or Sam’s Club instead, how to get a free admission, what items you should buy, pro tips for using your membership to the max, common Costco complaints, fun facts about Costco and its membership program, how to shop at Costco without a membership and finally, our thoughts on the program. Whew. That’s a lot of stuff to cover. But, it is my hope at the end of this article that you will be absolutely sure if getting a Costco membership is a good financial move for you.
Why the Membership Fee Anyway?
The answer isn’t as altruistic as you might expect. Costco and other clubs charge a fee mainly to entice loyalty. If you pay a membership fee, you’ll want to get your money’s worth. That’s probably why you’re reading this article, isn’t it? Members who pay a fee will keep coming back — even if many other stores are closer and less chaotic.
Another reason Costco charges a membership fee is to keep out the thieves. Members don’t steal stuff. According to Costco’s 2014 financial report, Costco sees very little of their inventory go missing.
The final major reason for Costco membership fees is just to add another income stream. Some people keep their membership active even if they stopped going regularly (to Costco – ha) years ago. After my grandma passed, we found out she was still a Sam’s Club member. Despite the fact that she hadn’t even driven a car in half a decade.
This is true of all subscription models. People get into a habit of paying and that brings in additional revenue. Habits are hard to break.
Memberships vs. Membership Specials
There are four card membership options at Costco but you really only need to make 2 decisions: 1) Are you a business? and 2) Is the 2% cashback worth paying double the membership cost?
Gold Star Membership
$55 plus tax
$55 plus tax (includes a free household card)
Executive Gold Star Membership
Double the price at $110 plus tax
Perks: Annual 2% cashback rewards on most Costco purchases (up to $750) + miscellaneous perks that feel like what you find in a ‘surprise’ package at a conference. Not great. Right now, Costco offers cheap home long distance phone plans, discounted home and auto insurance rates, a coupon code when renting a car with Avis/Budget, and some perks if you sell your house using some oddball program.
Executive Business Membership
$110 plus tax. Same as the Executive Gold Star Membership except it also comes with an Executive Gold Star Membership so you can still do your personal shopping.
Let me break it down really simply. For the cashback aspect of the card, you would have to spend $3,000 per year for it to make sense at the 2% reward rate. That is your break even point if you choose the executive membership over the standard membership. Because the everyday savings on items are the same either way.
There are no Costco membership specials as the price remains the same throughout the year.
Membership Fee Comparison
A recent Business Insider article compared the prices of Costco, Sam’s Club, and BJ’s Wholesale Club. Costco was the winner. Sam’s Club came in at a close second. BJ’s Wholesale Club finished last. But, what we’ve concluded was that it’s important to go to whichever store is most convenient and choose whichever one you feel most comfortable shopping in. That’s because the differences in prices were not too great. As she put it, “We’re talking pennies, not dollars.” But, we’ll post the membership fees at the two other clubs just so you’re not left wondering.
Your card choices are very similar to those of Costco.
- $45 plus tax for family savings
- $45 plus tax for business savings
- $100 plus tax for Sam’s Plus (cash rewards, extra service plan protection – not much to be honest)
BJ’s Wholesale Club
Again, your choices are very similar to those of Costco/Sam’s Club.
- $50 plus tax for personal membership
- $50 plus tax for business membership
- $100 plus tax for BJ’s Perks Rewards Membership (2% cashback like Costco)
When Do You Break Even?
Here’s the first example… anyone can shop online without paying the Costco membership fee. So, you may never bother getting one. But, by doing so, you will be charged a 5% nonmember fee. So if you buy more than $1,100 worth of products, you will want to have bought the basic membership ($55). That’s the break even point for a Costco membership if you really only want to buy a few things per year and want to do so online. And, that’s without taking into account the low markups at Costco. So really, your break even point will likely be much sooner. Let’s look at the quick math.
No branded item at Costco is marked up more than 14%. And no private label item is marked up more than 15%. Supermarkets mark up their items by an average of 25%. Department stores mark their items up an average of 50%. These mark up percentages are according to a New York Times article. So, what you can assume is that you’re saving 10% on groceries and 35% on non-perishables which could otherwise be found in department stores. The Costco membership fee seems enticing.
This means money can be saved on grocery items but more money can be saved on department store like items.
Minimum Annual Spending to Cover Your Membership Fee
About $600 in groceries, subtracting the lower markup (10% lower), vs. grocery stores while adding the $55 starter Costco Gold Star Membership plus tax.
About $150 in department store items subtracting the difference in markup (35% lower), vs. department stores while adding the $55 starter Costco Gold Star Membership plus tax.
In conclusion, focus on the department store items. This is where you can easily pay for your annual Costco membership fee in as quickly as one trip.
Big Ticket Items You Can Buy to Quickly Recover Your Membership Fee
- Tires (comes with free lifetime balancing, rotation, flat repair, and road hazard warranty). Costco also uses nitrogen in its tires which is far superior to compressed air — longer tire life, more stable pressure, etc.
- Quick Meals
- Gift cards (most cards are 20% off their value! Most people buy them simply for personal use.)
- Movie Tickets (believe it or not, they are super cheap at Costco)
Here’s a major reason why paying the Costco membership fee may be worth it. This reason stands on its own. Costco has the best return policy of any store. They accept returns, no matter the reason, no matter when the item was bought. Although I definitely don’t condone this, I’ve heard some crazy stories about people returning 5-year-old pants that rip on a camping trip.
The second best return policy is probably that of Amazon at 90-days on everything except electronics. Not only is the return window much shorter (90 days vs. infinity) but with Amazon you have to ship things back and let’s face it — that’s a hassle.
I read in Consumer Reports recently (January 2016 edition) that Apple computers are twice as reliable as PCs. The failure rate of PC laptops is about 10% in the first year, 15% by year two, and about 18% of PC laptops will fail in the first 3 years. Apple’s failure rate is half of PCs for each of the first three years. This is why many people opt for Apple. But, for me, Apple products are just way too expensive. And, I hate buying extended warranties since, as a rule, they rarely work in your favor. Instead of going with Apple because you’re scared your computer will crash or buying extended warranty, simply buy your PC at Costco. If it does crash, simply take it back. And, always remember to keep your data uploaded to the cloud constantly. That way, if your computer crashes, it’s no big deal. The data are saved elsewhere.
Pro Tips for Getting the Most Out of Your Membership Fee
- The more you go, the faster your membership fee will pay for itself
- Costco fuel is usually the cheapest around. Time your trips to Costco with your need for fuel.
- It’s wise to buy electronics at Costco. If they break, you needn’t worry because of the great return policy.
- No need to jump for the executive membership to get the 2% cashback. Instead, get a credit card that offers the same thing. Two percent cashback cards can be found even with no annual fee.
- Hit up the free samples — because who doesn’t like free samples?!
- I read Consumer Reports a lot. Costco’s house brand, Kirkland Signature, often ranks among the best brands to buy — regardless of price. So, usually reaching for Kirkland will result in a worthy buy.
Not every store is perfect. And, for the sake of keeping balance to this article, I want to outline some things people don’t like about the club store:
- First, you may have heard that Brad Pitt and Ryan Gosling were in a tizzy with Costco. Some eggs Costco sells come from caged chickens. The two Hollywood celebrities tried to get them to only sell eggs from cage-free birds.
- Amercian Express is the only type of credit card you can use at Costco. But, they will be switching to Visa-only in April of 2016. You can use a large variety of credit cards at Costco.com.
- Costco on Saturdays can be a suburban nightmare.
- On a more serious note, big box retailers really do carry a limited number of products. So, you can’t expect to do all of your shopping at these stores. Yes, they have coffee, but if you’re picky, you’ll need to go to a traditional grocery store. Remember, big box retailers typically only carry 4,000 items while traditional grocery stores often carry 40,000 items.
- There’s also something called the ‘Costco Effect.’ That’s where you go into Costco with only a few things in mind. You end up buying way more than you need. “Everything is so cheap!” is your common excuse. The only thing worse than overpaying for an item is buying something you don’t really want or need in the first place. Be careful.
- Some items at Costco are only available for a limited time. One month, you may fall in love with a certain item. Next month, it may be gone. Despite customers being loyal to Costco, Costo cannot always remain loyal to its product lines.
- There are also no shopping bags. Some people dislike this. But, in today’s age of reusable grocery bags, it shouldn’t concern too many people. Plus, most items are too big to really fit in bags anyway. And, it’s part of how Costco is able to keep their costs low. Costco provides sturdy cardboard boxes you can use after checkout.
- Costco doesn’t offer store delivery. Though a workaround is just to order the item online and have it shipped to your house.
- Some people also don’t like how Costco has few members available on the floor to help. Personally, I like not being bothered every minute. But, keep this in mind. If you need assistance while shopping, try a store like Hy-Vee. Consumer Reports says their customer service is impeccable. It’s true.
- The apple pie used in American Pie was bought at Costco, according to IMDB
- The popular $1.50 hot dog and soda combo you can buy at the food court has remained the same price since 1985. Costco sells more than 100 million each year. That’s more than four times as many as all the major league baseball stadiums combined.
- Costco sells more than 140 million muffins per year. Although I’m not 100% sure if this part is accurate, a friend who worked there said each muffin contains an entire stick of butter.
- Costco sells more pizza than California Pizza Kitchen and sells nearly as much as Cicis and Chuck E. Cheese
- Costco buys half of the world’s supply of cashews
- You get free tech support on electronics bought at Costco
- Costco is the second largest car dealer in the U.S.
- The typical Costco stocks 4,000 items. The typical grocery store stocks 40,000 items.
- Eighty percent of the company’s gross profit comes from membership fees
- Costco has 64 million members
- Nearly 90% of customers renew each year
- You can get a FULL refund on your membership price at any time — yes, if you are unhappy with your membership even after 364 days, you can cancel it for a full refund.
$0 Membership Fee? Shopping Without a Membership
Nonmembers can use the Pharmacy, buy liquor, or eat at the food court without a membership.
You can go into Costco without a membership if you enter with someone who has one. That person has to make the purchases as well. But, you at least get a feel for the store. And, you can simply reimburse them.
You can shop without a membership using a Costco cash card. The card must be purchased by a member but you can use it on your own. This is wise if you just want to try the store out on your own. It’s the perfect gift for a newly married couple, in my opinion.
As mentioned earlier, anyone can shop Costco.com, they are just assessed a 5% nonmember fee.
Remember that if you get a Costco card and are dissatisfied with your experience, Costco will refund the full amount at any time during your membership. With a 90% customer retention rate, Costco is confident you’ll stay committed.
Other than these small hacks, there is no free way to get around the Costco membership fee. There is no Costco one day membership, which many people have asked about. Costco one day membership would be great but only great for the shopper — not Costco. However, BJ’s Wholesale Club often offers free monthly passes. For 2015, you could have gotten two free months at BJ’s. Also, Sam’s Club sometimes offers days when the store is open to the public.
Obviously, I’ve spent hours researching the value of the Costco membership fee. As someone who avoids spending money when possible, know that what I’m saying, I’m saying for good reason. I absolutely think everyone should get a membership to a wholesale club. Even if you’re single. There’s money to be saved. One big flaw some people have with frugality is that they don’t take advantage of saving money because there’s an upfront investment. But, with Costco, you’ll break even on that investment really, really quickly. The typical person reading this article will probably break even after just two months. From then on, it’s pure savings!
Get a Costco membership. It’s well worth the membership fee. Or get a BJ’s membership. Or a Sam’s Club membership. Pick whatever feels best for you.
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