There is no one perfect model that will be translatable to every kind of business, it's really just trial and error until you find what works best for you, though if you are purely looking at balancing postage costs with item prices, I would look at making the postage cost roughly 25% of the item price ideally (I don't do this myself, for reasons explained below). eg If an item is $10 and postage is $8, then I'd probably make it something more like $14 with $4 post, with price discounts for multiple purchases, worked out however which way best suits, and assuming $14 wouldn't be too high above market value.
That being said, since letter-post is something you can use for your items, have you looked into pre-paid tracked letters? I like buying those on eBay when I can get a discount and it will at least mean overall cost to the buyer can be lower than with parcel rates.
I do flat rate shipping, myself, which is charged at tracked letter rates, and my items are low-value, which in some cases means my postage cost is twice that of the item cost (they range from a bit over $3 up to around $10) - most of my orders are multi-quantity, though, so this model suits. My postage charge was changed from untracked letter rates a fair while ago, and yes it had a noticeable impact on sales here, but not as much as I feared so I have kept it (it had no impact on sales volume elsewhere, only on eBay, and it took 4-6 weeks for sales to bounce back). Free post has never worked for me, even when total purchase price was less than what I previously had for item price + postage; in my case, people will pay $5 for a $5 item and $6 to have it posted, but they won't pay $11 for a $5 item, if you know what I mean.
You might even be better off with a different strategy all together, though - eg free post but combined discounts for multiple purchases, which you can set up through "Promotions" (via the Marketing tab on your home page), and / or through listing specific volume discounts.
