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I personally think that you should just offer the same price even if the item is small for an envelope. Our shipping charges also combine handling, packaging which is often more than just the cost of a stamp to send it in an envelope
Shipping is a major pain for online retailers. Customers should not really worry about it, as if they realised how much it costs them to drive down town in their car, and park and walk round town (time) and then buy a coffee somewhere, then drive home....
But of course some people think of that as entertainment !
Don't use OsCommerce, but we use weight-based rate Table in our cart system to control shipping methods. Under 1 lb goes FCM, 1 and above goes UPS (expect AK/HI/APO which are Priority Mail). We also use zones so our rates to far coast are more than 1-day zones close to us.