Price Check: Costco-nomics

When we finally took the plunge and became Costco members two years ago, I had some lingering doubts about whether our membership would actually be a good deal. I knew it would pay for itself that first year with the savings on Brian's new glasses, but I was less sure whether it would be worth sticking with in the long term.

Well, after a year and a half shopping at Costco, I'm now in a better position to answer that question. I already figured out, after less than a year, that paying extra for the "Executive" membership was not a good value. Fortunately, thanks to the special deal offered by our Costco (which they did honor, even though we never actually got it in writing), we were able to recoup the extra $60 we'd paid for it before downgrading to a regular membership at $60 a year. So at this point, if our Costco membership is saving us at least $60 a year, it's a good deal, and we should stick with it whether we happen to need new glasses or not.

The most obvious perk of our membership is the rewards we get from our Costco credit card (which we still have even after dropping the "Executive" membership). This gives us 2% cash back on all purchases at Costco itself, 3% at restaurants, a whopping 4% on gas, and 1% everywhere else - the same base rate we get with our other rewards cards. Over the last year, all that added up to $57.35.

On the face of it, this looks like nearly enough to pay for our membership all by itself. However, the figure is a little misleading, because if we hadn't been using our Costco card for all that stuff, we would have used one of our other rewards cards, which also pay 1% cash back most of the time. In some categories, at some times, they pay 5% cash back, but whenever that's the case, we use that card rather than the Costco card. So we've never actually lost money by paying with the Costco card; the question is, how much did we really gain?

To answer that question, I consulted the handy rewards summary provided by Citibank, the issuer of the Costco card. According to this, here's where we earned our rewards in 2018:

• 4% On Eligible Gas Worldwide: $34.91. If we'd put this on any other card, we'd have earned 1% cash back, or $8.72, so our card actually saved us $26.18 in this category.
• 3% On Restaurant Purchases Worldwide: $1.26. This doesn't account for all our restaurant purchases over the year; some of them were made on other cards that were temporarily offering 5%, and some were probably put on other cards at 1% by accident. So in all likelihood, we could be getting more out of this benefit than we are, but for 2018, it saved us only $0.84—$1.26 less the $0.42 we'd have saved using a different card.
• 3% On Eligible Travel Purchases Worldwide: $0.00. Spent nothing, got nothing.
• 2% On Costco & Costco.com Purchases: $14.47. Assuming that all the stuff we bought at Costco is stuff we would have bought somewhere else using a different card at 1% cash back, our actual savings on this was $7.24.
• 1% On All Other Purchases: $6.71. This is exactly what we would have earned using any other card, so no savings here.
• Total actual savings for 2018: $34.26.

That means our total actual rewards from our Costco card came to $34.26—more than half our our $60 membership cost. Not bad, but what about the other half? Did we save enough to cover that as well?

Well, that's a little trickier to figure out, since I unfortunately did not think ahead and save all my receipts from Costco over the past year. However, I have the receipt from our most recent trip, which includes:

• Raisin bran, 14.34 pounds: $21.87. Yes, I know that's a lot of cereal. Brian was stocking up because Costco doesn't always have it, and at this time there's no other store that can meet his target price of $1.60 or less per pound. Buying the equivalent amount of raisin bran at Aldi, the next cheapest option, would have cost us $24.38, so that's a savings of $2.51.
• Birdseed, 80 pounds: $27.98. Man, can those birds eat. Leaving aside the question of whether we're really getting our money's worth in entertainment (for us and for the cats) out of all the seed we stuff into them, the equivalent amount of birdseed at Lowe's would have cost $31.96. Savings: $3.98.
• Organic raisins, 4 pounds: $10.79. (These are one of the few products we always buy organic, due to concerns about pesticide residues. Grapes are part of the EWG's "dirty dozen" list of the most contaminated foods, and drying them concentrates the pesticides still more.) The same volume at Trader Joe's would cost $11.96. Savings: $1.17.
• Walnuts, 3 pounds: $10.89. These would cost $14.97 at Aldi, the next cheapest seller. Savings: $4.08.
• Brussels sprouts, 2 pounds: $4.99. This is actually the same price as Trader Joe's; we just grabbed some since they were handy. Savings: $0.
• Canola oil, 6 quarts: $7.69. Shop-Rite price: $9.00. Savings: $1.31.
• Organic sugar, 10 pounds: $7.99. This is less than half the $17.45 we'd pay at Trader Joe's, and there's less packaging as well. Savings: $9.46.
• Clementines, 5 pounds: $5.49. We only buy these when they're on sale for around this price, so no savings.
• Total savings from this trip: $22.51.

So. on just this one trip to Costco, we saved $22.51 on a total bill of $99.54, meaning we saved about 22% of what we spent. And according to our rewards summary, we spent a total of $723.50 at Costco in 2018 ($14.47 divided by 2%). And that did not include any large, one-time purchases like Brian's new glasses, since we bought those in 2017. (I didn't get new glasses last year, though I think I'll definitely need them this year.)

So if we estimate that we're saving an average of 22% on the goods we buy at Costco, we probably saved around $159.17 on everything we bought in 2018. Add in the $34.26 in credit card rewards, and our card is netting us $193.43 per year—more than three times the cost of our $60 membership.

For us, then, the numbers tell a clear story: our Costco membership is definitely paying for itself, even in years when we don't need new glasses. Your mileage, of course, may vary. If you have a Costco membership, it's probably worth going through this exercise for yourself to get an idea of whether it's a good value for you. But if your situation is like ours—you only buy a few things at Costco, but you save a significant amount on them—it probably will be.