Sorry to hear it's had a very negative affect on sales - it's weird how the smallest difference can be so impactful sometimes. 

I don't know if this will help, but I charge postage separately to my items, and I genuinely think that can make a lot of difference for low value items, because people still place a separate value on items and postage. It's a perception thing, a lot of the time, but I found (after also experimenting with free post a long time ago), people will pay $5 for a $5 item, and $5 to have it shipped to them, but fewer people will pay $10 for a $5 item and have it shipped for free.