Costco CEO says this is the most important item the store sells—it's not the $1.50 hot dog

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From gasoline to hot dogs to gold bars, there's no shortage of things you can buy at Costco.

But the wholesale chain's CEO says the items you pull off the warehouse's extra-large shelves are of secondary importance to what you carry in your wallet.

"The most important item we sell is the membership card," Ron Vachris told Fortune in an interview last month.

Costco's has a 130 million-strong membership base, each of whom pays between $60 and $120 per year for access to the chain's stores.

The promise of 2% cash back with Costco's Executive membership can be tempting, but it might not be worth the upcharge.
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The promise of 2% cash back with Costco's Executive membership can be tempting, but it might not be worth the upcharge.

The cheaper Gold Star membership grants members access to all the chain's warehouses and deals, while the pricier executive membership has the added bonus of 2% cash back on each purchase.

Costco has seen its member base swell 50% since 2016, with membership fees generating $4.6 billion in revenue last year. On top of that, its members are loyal, with 90% of cardholders opting to renew their memberships according to Costco's most recent annual report.

Because only members can shop in a Costco warehouse, the store is designed to keep them coming back. From affordably-priced gasoline stations that lure customers in, to the chain's famous rotisserie chicken being placed in the very back of the warehouse, Costco wants you to feel like your membership fee is worthwhile.

"Everything we do supports that transaction," Vachris said.

If you're thinking about signing up for a Costco membership, but don't know if you should go for the $60 or $120 tier, some simple math can make the choice easy for you.

Because you get 2% cash back with the more expensive Executive Membership, you'll need to spend $3,000 to receive $60 in cash back. At that point, your effective annual membership rate is back down to $60. 

If you think your annual spend will be under $3,000, stick with the cheaper tier.

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