I charge flat-rate shipping, but I almost always have the lowest shipping cost on my items.
I figure paypal and ebay costs/fees into my shipping, but as I said, I'm still usually the lowest shipping with comparable products.
I take a lot of pride in this, and don't hesitate to let it known to my customers/potential customers. And it works well for me. I'll see items of mine bid higher than the seller offering the same item buy it now, at a lower cost, simply because my shipping is $5, $10...or even $30 cheaper than the competition.
I say stick with it...my sales have slumped after christmas as well, but are fairly consistent, none-the-less.