I have been trying to get my shipping smoothed out at SpeakerLightKits.com. I have the small US orders under control. My next goal is to address slightly larger orders and foreign orders. I want to get some more orders in to grab data from before I jump into that.
What I have been doing in the mean time is refunding any amounts charged for shipping that are over by a large amount. The PayPal shipping setting that I use are pretty limited. Each state must be in a certain group (even though some states have 2 separate shipping zones and costs) and then each group only has 5 weight / cost tiers. If I had 10 tiers to work with it would be much easier.
My target is to have shipping charged like this: If someone orders a package and I would take it to the post office and the price would be $6 to ship it...I have PayPal set to charge $6 shipping...BUT since I pay the postage on-line I get a shipping discount ($.46 off). This varies on the order size. The larger the shipment the larger the discount. I keep that discount (usually around $.50 on a small order). So what I am charging is actual shipping charges, but I am keeping the saving that I get by doing my post office work on-line. Boxes, supplies, time to pack the order....I consider all of that getting taken care of by purchasing my product.