Small firms which rely on the auction site for most of their sales say that its new higher commissions are squeezing profits

Small firms that sell their goods on eBay are being squeezed out of business by a massive rise in fees to use the online auction site.

Many traders have seen their costs double, with eBay siphoning off up to 12 per cent of the final sale price. The recently introduced price rises have affected particularly those small firms that rely on the site for most – if not all – of their trade.

Johnny Alexander, who has been running the eBay designer watch shop Planetwatch for the past nine years, said the fee increase had run his business into the ground. "I'm looking for a way out. I've been going to school to try and get another profession. They're taking too much money. My profit used to be around £4,000 a month, but now I'm lucky if I'm making £1,500, and in London that's not a lot to live on."

One antiques seller, whose company relies entirely on eBay, revealed this weekend that he has had to make two-thirds of his staff redundant in recent weeks as a direct result. He is now worried he will have to wind down the whole company.

Like many other traders, he fears that complaining will lead to eBay shutting down his account altogether. Speaking on condition of anonymity, he said: "They're ruthless. That's how they keep their dominance. They were taking a third of my profits in fees and now it's two-thirds. If I lose my top-seller discount I won't even make a profit. I built my business around eBay's platform. I don't have a shop or anything; if this goes I don't have an alternative."

Users were given just four weeks' notice when the increases were announced in May, despite most reviewing their finances annually and having no way to cushion the blow. Now many say they are being driven out of business as their already small profit margins disappear.

Antiques sellers saw their final fee nearly double, going from just over 5 per cent of the total paid to 10 per cent, often eliminating any profit. Those selling clothes, shoes and accessories now have to hand over a 12 per cent cut of the price of each sale.

Judie Johnson, who set up her Art Deco jewellery business at the start of the year, was shocked when the prices went up.

"With PayPal fees – which are a part of eBay – on top, it ends up that they take around 16 per cent. It's made it much harder," she said.

The old fee structure was a sliding scale, where the site took a much smaller percentage of the price from higher-priced items. But now eBay has introduced a flat percentage, which allows it to take big sums from the sales of more expensive goods, leaving many traders out of pocket.

The Federation of Small Businesses said the fee increase is causing major problems for a key sector of the economy. According to its spokesman, Andrew Cave: "Since it provides a platform for business to grow during this difficult time, one would have hoped that eBay would have acted responsibly and seen this as an opportunity for the future. Instead they've raised prices for a short-term revenue grab. Where eBay is at the centre of [a trader's] business model, this could be catastrophic and is obviously leading to job losses and even some business closures."

One former trader posted on an eBay chatroom: "Sadly I have closed my shop, there's no point in running it any longer as it can't even wash its face... I personally don't know why eBay is slaughtering all the sellers."

Not all sellers on the site have seen the cost of trading rise. In an attempt to make the site competitive with rivals such as Amazon Marketplace, those selling technology have had their fees slashed to 3 per cent.

A spokeswoman for eBay said: "We announced a new fee structure for eBay business sellers in May, introducing a fixed final-value fee on items if they sell and lower insertion fees. Fees have fallen overall for many sellers, but have increased for some, and this depends on what category of item you sell and the price you sell at."