Technically Etsy doesn't have any specific tools for placing your shop items on sale. However you can always do it manually: reduce your products prices, add "SALE" prefix to your listings titles, edit photo etc. Let's take a closer look to this approach.
When customers see your items in a search results they will see right away that product is on sale (from your title or photo, if you edited it). This might attract more clicks to your shop and increase a conversion rate of buyers from search results.
When somebody shares your product in social media their followers will see listing's current price, picture and title notifying them that this item is on sale.
Sales are very flexible - you can place on sale just one or a couple of items (your least popular products, for instance), one or more shop sections or even your entire shop.
You can run sales as many times as you want. There is no limit on how many times you can run sales events.
It will probably take a while to modify your listings. Obviously it depends on how many items you want to place on sale, but even with a dozen of products it might take a lot of time. The process is very tedious and you need to modify every listing you want to place on sale. Don't forget, you will have to go through this process twice - when you place your products on sale and when you put them back to original state.
You cannot set hard expiration date for your sales event. As long as you use manual approach for running your sales you won’t be able to set automatic expiration date. This means that you have to remember to revert all changes after your sale is over.
There is a chance that a customer can get a double discount by applying a coupon code to on sale items during checkout. You should keep this in mind if you have active coupon codes and clearly state in your policies that coupon codes cannot be combined with any other offers or promotions.
Etsy provides out of the box support for shop coupons creation. See Your shop -> Promote -> Coupon code section.
The main benefit comparing to sales events is that you don’t need to modify any of your listings. It takes less than a minute to create new coupon code.
You can create a coupon for free shipping. Even more - Etsy gives you three options here: percent discount, fixed discount or a free shipping.
You can create multiple coupon codes each for different traffic sources (e.g. FACEBOOK10OFF, TWITTER10OFF etc.) and figure out which one works better. You can see how many times each coupon has been used in your shop admin.
Customers can use only one coupon code during checkout (however if you runnig a sale technically customer still is able to apply a coupon code on checkout in addition to your sale discount).
You can set a minimum purchase price and expiration date for your coupon codes.
You can create a "Thank you" coupon that will be automatically sent to a customer right after purchase to encourage them get back to your shop.
When you create a coupon code it doesn't show up anywhere in your shop. You would have to promote it on social media, your shop announcement, products descriptions etc.
You cannot restrict your coupon code to specific shop sections or items. Coupon codes can always be applied to any item of your shop. Make sure to cover your coupons terms in shop policies or announcement.
There is a hard limit of 100 coupons you can create in your Etsy shop. You also cannot create two coupons with the same code (even if you deleted it). You should keep that in mind and act wisely when you create coupons (pick coupon codes which can be reused in future).
As you can see even though sales events and coupon codes have similar purpose they differ a lot. Now you know pros and cons of both approaches and can easily figure out the best way to set a discount on your shop items. If you decide to go sales events way there is a one tip - sales event manager. It eliminates a burden of manual listings modification as well as a bunch of other items from sales events cons list. Sales event manager will help you create a sale just in a couple of clicks. You won’t need to edit items yourself or track the dates to stop a sale. Sales event manager will do that for you. It will also bring all listings photos, prices and titles back after sale is over. Moreover, you can automatically publish your sale to Facebook, Twitter and Pinterest pages!
And for those, who think that coupon code will fit their needs better at this moment we have coupon manager. It can create coupon codes and publish them (just like sales event manager) to your social media pages! It can also add a Facebook offer for newly created coupon to your Facebook business page. Facebook offers attract more customers and generally perform better than regular Facebook posts.
Which approach do you prefer now?
I would like very much if you could mange coupon offerings the same way you do sales. Post to images, etc. I generally run my sales as a coupon.