Costco: a membership card as the premise, a hot dog as the proof

You cannot shop at Costco without a membership. In the United States and Canada the basic card costs 65 dollars a year and the Executive tier 130, after the first increase in seven years took effect in September 2024. In the fiscal year to August 2025, Costco collected 5.3 billion dollars in membership fees, against net income of 8.1 billion, on sales of almost 270 billion. It ended the year with about 81 million paid memberships, and 92.3% of members in the US and Canada renewed.

Near the exit of most warehouses sits the food court, where a quarter-pound hot dog with a soda has cost 1.50 dollars since 1985. Former chief executive Craig Jelinek has told the story of going to co-founder Jim Sinegal to say the company was losing money at that price, and being told, in stronger words, never to raise it and to find a way. Costco started making its own hot dogs. In 2024 the new finance chief said on his first earnings call that the price was safe, and in March 2026 chief executive Ron Vachris said it would stay at 1.50 for as long as he ran the company.

Paying to be let in

Most companies spend money to remove barriers between the customer and the shelf, and Costco charges for one. In the books this is the premise at its purest: the part of the value proposition that says who the offer is for and who it is not, built here into the economics. A card paid in advance selects the households the model needs, people who concentrate their shopping, buy in volume and come back often. It quietly turns away the occasional shopper, who would take up parking and checkout time and buy little.

We call that kind of premise a self-executing one. A sign saying “this store is for families who buy in bulk” could be ignored. A fee cannot. The customer reads the condition of access, accepts it, pays for it, and from that moment has a reason to come back and use what they paid for.

A price as a proof

A low-price promise is the easiest claim in retail to make and the hardest to believe, since every competitor makes it. Costco keeps its margins on goods thin, which few shoppers can verify across thousands of products. The hot dog is the one price everyone can verify. It has not moved in four decades of inflation, it sits where most members pass on the way out, and the press reports on it every time an executive is asked whether it will change.

That makes it a proof in the method’s sense: evidence that the promise is kept, placed where customers form their impression of the visit, at the end. The story of Sinegal refusing the increase matters for the same reason. A company that guards a 1.50 dollar item that firmly is telling members how it will treat the rest of the basket.

Raising the fee and keeping the contract

The 2024 increase was a test of the relationship. Costco’s annual report attributes a sizeable part of the 10% rise in fee income to it, and renewal rates stayed above 92% in the US and Canada, slightly lower than a year earlier, which the company linked to the growing share of members who sign up online and renew less often. A membership model shows its health in that number before it shows anywhere else. Renewal is the member’s annual verdict on whether the premise was worth its price.

The lesson for other models

The transferable idea is the turnstile itself. Any company can ask what its customers would be willing to pay for the right to buy, and what that payment would filter out. Minimum orders, waiting lists, application processes and annual fees all do the same work when they are designed on purpose, and each one needs a visible proof on the other side, so the customer keeps feeling that the condition was fair.

If you want to design the conditions of access to your own offer, what we do starts with writing the premise before the promise.