When You Should Buy the $120 Costco Membership

Now I’m assuming you’re already a Gold Star Costco member. This is their basic membership and it costs $60 per year. If you’re not already a member, you should sign up.

Because Costco is awesome.

Why? It comes down to business design. Just as Geico can offer cheaper insurance because it primarily uses the internet and phone to sign people up, lowering their operating cost, Costco focuses on pallets, which reduces their cost. These savings are passed onto us. Let me explain.

An average Walmart super center has 100,000 items and the average Costco has… 4,000 items. Costco moves most of their products around by pallet. This saves an enormous amount of money as in a Costco, a pallet comes off a truck, a forklift puts it on the floor and consumers empty it. Contrast that to a Walmart where a semi pulls up and a team of people empty the entire mis-mash of products, sorting them and then they are taken out and stacked onto the appropriate shelf by yet more people. It’s very labor intensive.

Costco also does not mark anything up more than 15%. So anything that you’re buying is likely at a reasonable cost. Some things will be cheaper elsewhere, but if you’re buying groceries week in and week out, and you don’t want to spend anytime cutting coupons or hunting for the best deal, Costco is the place to be.

Finally, if Costco sells it, it’s probably decent. If you’re like me and analyze everything to an insane degree this will free up your time. Need new wipers for your car, don’t worry about picking out of the 50 Walmart has, just pick one of the three Costco sells. With space for only 4,000 products they have to be selective and this makes it easy for us.

I’d also like to point out that shopping online with Costco is getting better every year. I’ve shipped $25 worth of lightbulbs to my house for free, which is lower than Amazon’s $35 required for free shipping where I’m located. And they’re not trying to be the quickest. They focus on quality and price.

So you need a Costco membership, but which one should you get? Start with the Gold Star membership, it’s going up to $60 per year, but you’ll save that on toilet paper alone. In fact, if you search personal finance blogs for comparisons you’ll find that even though some items are more at Costco when you look at a load of groceries people are saving 20-40% compared to their local supermarket.

Once you have some Costco history you should see if you’re spending $250 or more per month. If you are then you should upgrade to the Executive membership, which is going up to $120 per year. With this card, the main addition is that you get 2% back. So to get back the additional $60, you need to spend $3,0000 ($60/0.02) per year. Anything above that is gravy. Or poor financial discipline depending on what you’re buying!

Another benefit of Costco is that they know what you bought because you have a membership card, so if you need to return something they can see if you purchased it there. There’s nothing I hate more than buying something from Walmart, having it crap out in a month, but not having the receipt to return it. Costco also typically offers an additional year of warranty for free on televisions. Oh, and they pay their people a ton more than their competitors. Reportedly, average hourly employee makes over $20 an hour at Costco, compared to Target and Walmart who fall into the $10-13 range and they just raised their minimum to $13.

So support good products, cheaper prices and better wages. Get a Costco membership.