I do a little bit of both. Etsy has a video that explains what to charge. A jewelry program I had explained materials + labor + profit x 1.5 for wholesale, 2.5 for direct and 3ish for retail. HOWEVER, as an Etsy seller, you might be absorbing the mailing costs as well. (Don't forget to include the cost of the mailer and the packaging in your material costs. That said, what are similar items selling for? It won't do you any good to price your items so they won't sell. On the other hand, do you want to attract the "cheap" segment of buyers?
What I'm trying to say is that you have to charge enough to cover your materials and labor or you're losing money. After that, I think you need to play with the profit to get to the point where you are selling and making enough to make it worth your while.
If I'm making a saint medal necklace, and the cost of the medal is .75, the chain is .15, the clasp is .05, that's .95 for materials. Am I going to sell that medal for 2.37 plus packaging (x 2.5) and mailing? Um, no. It wouldn't be worth my while. I sell the most necklaces at 12.99 price point plus free shipping. Let's say mailing and packaging materials and additional postage costs add up to $5. I'm making a 50% profit, approximately. I will not get rich off of this, but at least I feel it was worth the time to make the necklace. Notice I didn't charge labor, because for me on this particular item, it doesn't make sense.
You play with it until you find the sweet spot where it's worth your while and you're selling.
