I personally arrange mine by groups I mentally put them in, but here's some examples of different ways to arrange characters.
If you peddle characters, you can arrange characters you have up for sale/trade/adoption in a separate folder from your personal characters, but if you don't, then... yeah.
You could additionally separate characters you designed, from characters you purchased.
If a group of characters is all one species, put them in a folder together. You can be broader with this and lump all the canids into one folder.
If your characters have a bigger picture, (a story, or fandom) put them together in a folder for that group.
If you have a lot of characters and a lot of incomplete/empty profiles, you can arrange them in folders for personal use of what needs to be worked on. You can even alter the folder's privacy.
It never hurts to have folders within folders, like a species folder in a story/fandom folder.