Patronage refunds are a key mechanism by which cooperatives practice their principles. As noted above, when a co-op makes an annual profit, part of this net income is distributed back to the members in proportion to their use of the co-op during the past year. In effect, such patronage refunds are a demonstration of the cooperative principle of benefits in proportion to use.

About 20% of net income is usually distributed to the members. The remaining income is retained by the co-op in order to ensure a firm capital base for the co-op's future. However, the co-op allocates the retained portion to each members account. Tax laws require that co-ops notify each member in writing of their patronage refunds and the total amount allocated to the members account.

Reinvestment of patronage refunds is a key way for members to meet their obligation to provide the capital for the co-op in proportion to their use of it. It is important that co-op policies on patronage refunds be communicated to the members effectively. Members need to understand their role in providing sufficient capital to the co-op so that is able to grow and thrive. Without sufficient communication on this subject, members may have unrealistic expectations regarding when and how much patronage refunds they may receive.