What's the best way to advertise on Etsy? Great question! First, let's take a couple steps back and talk about the basics for a minute.
Selling is all about establishing and maintaining buyer confidence - confidence in you and in your product. (You already know that, but it's worth re-stating because selling on-line is 10 times harder (at least) than selling in person.)
To do that you first need to understand your ideal patron, then create work that appeals to that person, display it in ways that are attractive to that person, price it accordingly and write good ad copy to describe your work and answer your patrons' questions. Your copy should also reflect sound SEO principles (as a simple example: use simple, descriptive titles that people use when searching such as: "French Provincial Cabinet.") Use descriptive single-word tags and put the most important words first - for example: cabinet, French, Provincial, walnut, and so forth. The idea is to attract customers who don't necessarily belong to Etsy, but who use Google, Bing, and other search engines to find (in this example) French Provincial cabinets. (You want proof? Close to 50% of my Etsy sales come from first-time Etsy buyers who found my work from a search engine.)
Next, take great pictures of your work. Invest in professional photography if you can afford it, otherwise learn to do it yourself. You don't need expensive equipment (I use an old 4mp camera, five ordinary shop lights, 20% gray poster board backing, a pvc pipe frame I made myself, and Gimp (a freeware Photoshop competitor) processing software. Total investment? under $200. But whatever you have - you need to learn how to get the most out of it. (Just like in the shop, the right tool helps - but only if you keep it sharp and use it properly.)
Next: have a great shop banner. (Hire a graphic artist to make one, if you can't do it yourself.) Write compelling introductions and sound shop policies. (I found it worthwhile to have my shop critiqued professionally - Cathy at EurekaGuides will give you an excellent one for around $25. There are probably others, but Cathy's very good.) The advice will probably hurt, but remember: you want SALES - not pats on the back. If following that advice generates sales, that's all that counts. So check your ego at the door, so to speak, and follow that advice!
Next, join a large and very *active* team and participate in forums/discussions. Create a treasuries featuring others' work - at least monthly and more often if you can. Reach outside your comfort zone. As woodworkers, we typically think in terms of things that create sawdust. But think in terms of what your ideal customer typically buys. (Trust me, guys - it ain't woodwork!) And feature that kind of work in your treasuries. (Look at the treasuries that make the front page and those that are the most popular and style yours accordingly.)
Add people to your circles. By extension, many will add you to theirs.
Set up a Facebook Fan page, become active on Twitter and StumbleUpon. All will generate leads.
The idea is to become as widely known as possible for creating amazing work at prices people are willing to spend. In short, create a compelling value proposition - and make yourself known as widely as you can without breaking the bank. I could go on, but I think I've made my point.
Wait a minute, you might ask: doesn't that take a LOT of time? When do you find time to make anything? The answers are "yes" and "whenever I can." I only get to spend 20 - 30% of my time (if I'm lucky!) in the shop/studio making wood chips. The rest is spent doing all the above and more. But that, as they say, is life - and business.
Anyway, I hope some of this helps!
Brad
P.S., In the interest of full disclosure: I have no commercial interests in any of the products or people I've recommended.