The Costco Membership Model

The Hot Dog Is Still $1.50

“If you raise the effing hot dog, I will kill you. Figure it out.”

That’s Jim Sinegal, co-founder of Costco, talking to his CEO. 1984. A quarter-pound hot dog and a soda for a dollar fifty. Forty years later — same price. Inflation says it should cost $4.52 today. They sell 245 million of them a year. More than every MLB stadium combined.

When costs squeezed, Costco didn’t raise the price. They built their own factory. Switched suppliers. Made the hot dog bigger. Kept the promise.

That’s one story. Here’s the other one.

The scanner at the door

Costco just rolled out mandatory card scanning at every entrance. Photo verification. Food courts, members only. Customers are livid. Employees catching heat. Reddit threads calling it a betrayal.

The same company that built a factory to keep a $1.50 promise is now putting a scanner between you and the food court.

Most people see a contradiction. A company that gives everything now takes something away?

It’s not a contradiction. The scanner protects the hot dog. The boundary protects the promise. Remove one, the other breaks. And this goes way beyond retail.

I wrote a while back that good leaders are good at drawing, that the clearest strategic thinking happens when you sketch it on a whiteboard. People reached out after that post. Same question every time: show me one of these drawings.

Here’s one. Two axes. Four quadrants. And a $1.50 hot dog that explains where your team sits.

The Trust Quadrant

X-axis: value delivered. Y-axis: standards enforced.

1. The Membership (high value, high standards)

This is Costco. You keep the hot dog at $1.50 AND you scan cards at the door. The value earns the right to enforce the boundary. The boundary protects the value.

92.2% membership renewal rate in the U.S. and Canada. Think about that. Membership fees are less than 2% of revenue but drive roughly 73% of net profit. People aren’t paying for the products. They’re paying for the system.

For teams: this is voluntary adoption. Backward compatibility promises kept. A golden path that’s actually golden. People keep showing up not because a mandate forces them, but because the platform makes them faster.

2. The Toll Booth (high standards, low value)

All rules, no reward. Mandated usage, breaking changes nobody warned you about, approval chains that take longer than the actual work. None of it makes anyone faster.

You scanned the card at the door. The hot dog costs $9.

A Nokia veteran described on Hacker News how Nokia’s internal IT got so bureaucratic that engineering teams started using AWS behind their backs. “Once one team launched on AWS, things spread. The managers got bonuses. There was no way Nokia IT was getting back on the critical path to anything.”

They enforced the rules. Nobody renewed. 80% of internal developer platforms end up here. The scanner without the hot dog.

3. The Free Sample Table (high value, low standards)

Everyone’s welcome. No boundaries. The team that never says no. Beloved until it collapses under its own weight. Every edge case supported, nothing deprecated, technical debt stacking up quarter after quarter.

A food court with no membership. The economics break.

Iyengar and Lepper’s jam study found that shoppers offered 24 options were 10x less likely to buy than those offered 6. Costco stocks 3,800 SKUs. A typical supermarket? Over 30,000. Sometimes the most generous thing you can do is limit the choices.

You can’t sell a $1.50 hot dog to everyone who walks in off the street. That’s how you go from generous to bankrupt.

4. The Abandoned Lot (low value, low standards)

Built it. Nobody came.

The $4.2M internal developer platform where 64% of engineers still use kubectl directly. The platform that lives in Confluence but nobody touches. No trust earned, no standards set. An empty warehouse with no hot dogs and no scanners.

Which direction are you moving?

The quadrant isn’t just a diagnostic. It’s a map with arrows.

If you’re the Toll Booth: stop adding gates. Start keeping promises. Costco spent 40 years on the hot dog before they scanned a single card at the door. Earn the value first.

If you’re the Free Sample Table: start saying no. Some people will be angry. Costco’s Reddit is full of complaints about the new scanners. The renewal rate holds at 92%. You add boundaries to protect the people who already said yes.

If you’re the Abandoned Lot: find your hot dog. Deliver one thing well before you try to deliver everything.

I watched this happen on my own team

A few months back, my data platform team picked up FinOps management for the data platform. They could have started where most teams start. With the scanner. Here are your budgets. Cut 20%. Report monthly. Comply. That’s the Toll Booth. Mandated cost reduction before anyone trusts the team mandating it.

Instead, they built the hot dog.

They hand-coded a custom experience for each data owner. Not a generic dashboard. A view showing exactly what that owner’s team was spending, where the costs lived, why the numbers looked the way they did. Then they sat down with each one. Not to lecture. To learn. How do you debug a cost spike? What does a normal month look like versus a bad one? What do you actually need to plan a quarter ahead?

They earned the right to talk about cost reduction by first proving they understood the cost.

And now? The standards practically enforce themselves. Nobody pushes back on cost targets when the team that set them is the same team that helped you understand your costs in the first place. It’s early. I don’t know if this holds through the next round of budget pressure. But right now, the pattern is clear: value before standards. Trust before enforcement. That’s the Membership.

They built the hot dog before they put the scanner at the door. That’s the kind of drawing I meant.

The hot dog is still $1.50

Forty years, same price. They still scan your card at the door. Two expressions of the same promise, facing two different directions. One says: we will never stop earning your trust. The other says: we will protect the system that makes the trust possible.

Most teams get this backward. They start with the scanner. Mandates, compliance, approval gates. And they wonder why nobody shows up for the hot dog.

So here is my question to you: draw this quadrant. Put your team on it. Where are you sitting right now, and which direction are you moving?

#Leadership #Strategy #PlatformEngineering #EngineeringManagement #Costco #Trust