Costco and framing

Talking about Costco, going over its 2025 shareholder letter, it’s incredible how clearly the company’s mission and business model are defined.

Another nuance that called my attention is how the business talks about labor costs differently than other businesses: “Our operating hours are shorter than many other retailers, and due to other efficiencies inherent in a warehouse club operation, we believe labor costs are lower relative to the volume of sales.”

Costco measures labor cost relative to the volume of sales. That one framing choice changes everything:

Pay $30/hr instead of $17/hr — looks expensive, shows Costco pays above market rate.

But shorter hours + higher throughput per employee + no restocking elaborate displays = fewer total labor hours per dollar of revenue.

The ratio is lower even though the rate is higher.

It’s a good reminder that the question is never “how much does this cost?” but “how much output does this cost produce?”

And it compounds. Higher wages attract better people. Better people are more productive. More productive people need fewer hours. Fewer hours means lower total labor spend per unit sold. Lower cost per unit means lower prices. Lower prices mean more volume. More volume makes the denominator even bigger. The “expensive” input keeps making the ratio cheaper.