What is the recommended way? (Serious question, I have larger projects that I would someday like to refactor into proper packages)

There is also these guides that provide plenty of information on how packages work and best practices:

https://packaging.python.org/en/latest/distributing.html

https://github.com/pypa/sampleproject

I have "organize the code using a single top-level package".

Because the name "libs" is now installed into the global module namespace. It's better to use a less generic name.