>>10020531I have tried both and i think by function is better
Initially I had sorted by color but I switched to part function You would go blind staring into a big pile of black parts looking for part just takes longer to find things and more sub divisions.
-brick
-brick modified
-plate
-plate modified
-technic
-tires + misc
-walls Doors Panels
-Minifigs + accessories
-Transparent pieces , windows ,windscreens
If you get a bigger collection or more storage space you can sub-divide further.
Divided by color only makes sense for big parts big bricks and plates etc