Costco’s Subscription Model
Summary
- Costco has almost 100 million subscribers in the U.S., which is about one-third of the country. It’s one of the most successful subscription models ever.
- Many think Costco makes money by selling products, but they gain margin through volume discounts by buying more products.
- The membership gives access to unique products at super high volume and lowest costs, creating a scarce resource that people want.
- The money from memberships is pure profit (100% margin), while the rest of the business runs at a break-even point.
- The primary financial model for Costco is the membership fee, as it allows them to run the business efficiently and effectively.
Video
How To Take Action
I would suggest implementing a membership model in your business if it aligns with your offerings. It’s a cost-effective way to create predictable revenue, similar to how Costco operates. Begin by identifying a product or service that you can offer exclusively to members. It should be something valuable and desired by your customer base.
A good way to add value is by providing discounts or unique products that are not available to non-members. This exclusivity can make your membership more attractive. Even if you run the rest of your business at break-even, the revenue from memberships can be pure profit, as demonstrated by Costco.
Start small by building a community around your business. Engage with your customers and get their feedback on what they would want from a membership. This can be as simple as newsletters, early access to new products, or even exclusive content.
Lastly, focus on volume. Just like Costco, think in terms of buying or producing in bulk to lower costs. This approach requires minimal investment but can yield significant results. Running your operations lean while leveraging the membership fees ensures more sustainability in the long run.