Amazon is charging more for sellers to promote big discounts on Prime Day

Key Points
  • Amazon has increased the fee to run Lightning Deals on Prime Day for the second year in a row
  • The company is also encouraging sellers to buy more ads on Prime Day.
  • Some sellers say Amazon is improving the experience by forcing sellers to spend more.
Jeff Bezos
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Amazon has turned Prime Day into one of the biggest online shopping holidays. But for many sellers, it’s becoming more expensive to participate.

For the second year in a row, Amazon has increased the registration fee to run Prime Day Lightning Deals, which are limited-time promotions exclusively offered to Prime members. It now costs third-party merchants $750 to run each Lightning Deal, up from $500 last year, according to an invitation that was sent to sellers and viewed by CNBC. Amazon first introduced the fee for Prime Day last year, after not charging anything in 2015 and 2016.

The fee hikes for Prime Day, which will be held on July 16 and 17, are another example of how Amazon is squeezing more money out of the sellers who wish to take part in the company's annual shopping extravaganza, now in its fourth year. By charging more in fees, Amazon not only makes additional cash but also filters out sellers who aren't confident that their products will be popular enough to justify the costs. 

That’s important because Lightning Deals are a big draw but have often received poor reviews on past Prime Days, said Sean Adams, an analyst at marketing agency Merkle.

“The fee hike is going to make the sellers be more intentional with what products and deals they’re going to choose" on Prime Day, Adams told CNBC.

Lightning Deals, which are offered year-round on Amazon’s “Today’s Deals” page, become more important on Prime Day because of the spike in traffic and exposure. All Lightning Deals become exclusive to Prime members on Prime Day and are highlighted in short intervals throughout the day. Sellers have to meet additional requirements, like a minimum 20 percent discount and a three-star or higher rating on each product they submit. Amazon typically charges $150 per Lightning Deal on normal shopping days.

Amazon now has over 100 million Prime members worldwide, and Prime Day continues to break sales records every year — making Lightning Deals a valuable asset.

The date for Amazon's Prime Day might've been leaked
The date for Amazon's Prime Day might've been leaked

“Amazon can leverage it and charge more because it’s a great marketing opportunity for brands and sellers,” said Julie Spear, a manager at Bobsled Marketing, which advises Amazon marketplace sellers.

For first-party merchants, or those who sell wholesale to Amazon rather than using the marketplace, the fee for each Lightning Deal is still $500. 

Amazon didn't provide a comment for this story.

'Use advertising to help stand out'

Amazon has also stepped up its effort to sell ad space on this year’s Prime Day, some sellers say. In one of the marketing documents, which CNBC obtained, Amazon's advertising team encourages sellers to increase their ad budget on Prime Day while extending the length of their ad campaigns.

It also says ads are more effective on Prime Day as sellers see up to a 300 percent increase in ad-attributed sales and 200 percent growth in ad impressions. Amazon previously said that the goal of serving ads on its site is to provide a better shopping experience while giving more visibility to the seller.

“Use advertising to help stand out from the crowd, reach a wider audience, and kick off the holiday shopping season,” Amazon wrote in the marketing material.

While Amazon gets the vast majority of its revenue from e-commerce and cloud computing, its advertising business surpassed $2 billion in revenue last quarter. 

At the same time, Amazon is getting more and more money from seller fees. Given last year’s Prime Day saw “tens of thousands” of Lightning Deals, Amazon should have made at least $10 million off the fees on Prime Day alone (based on 20,000 Lightning Deals multiplied by last year's $500 per deal fee).

Ray Berman, a seller on Amazon, said he’s not running any Lightning Deals this year because he expects the increased traffic to generate enough of a bump in sales. While he plans to spend more on ads on Prime Day, the overall cost of being part of the big shopping event keeps growing, he said.

“What happens as a seller on Prime Day is Amazon is increasing fees, charging us more money, and figuring out how to double dip into our pockets,” Berman said.