With PPC’s, the name of the game is profit. You need to be careful not to get carried away with the ranking so that your promotion doesn’t cut into your revenues. This is essential! There’s no point in being top if you’re out of business in a month. You have to figure out what you can afford and keep to it. Base your decision on your visitor-to-sales-ratio (the number of visitors on average that it takes to generate a sale) and your net profit per sale.
So for example, if you get a sale from every tenth visitor, and you net a profit of $20 from each sale, then you can’t pay more than $2 for each click without operating at a loss (unless you have an effective back-end sales campaign setup as discussed earlier). In practice, you might make one sale for every 100 or so clicks and pay perhaps 15 or 20 cents for each visitor, depending on your market. It’s absolutely crucial for you to know your visitor-to-sales-ratio. It’s also important to keep that ratio as high as possible, and that means only bidding on relevant keywords. If you pay for visitors who are looking for something completely different than the services you’re offering, you’re just throwing your money away. They aren’t going to buy, and even at five cents a shot, those wasted nickels soon add up.
On the other hand, because you can pay so little, it is worth bidding on as many relevant keywords as possible.
The key is to balance high payments for top keywords with low payments that bring in less traffic.
You should also consider the quality of visitors the site will send you. The more targeted a directory, the better your visitor to sale ratio will be and that might make it worth increasing your bid price.