Here’s the magic equation: simply multiply your max cost-per-sale by the conversion rate. The answer equals the most you should pay for a single click. For example, if you decide that the most you can afford to pay for a sale is $10, and you assume that one percent of people who click your ad will wind up buying your product, then the most you can afford to pay for a click is a dime ($10 x 1% = $0.10). If your conversion rate is a stellar two percent, you can afford 20 cents.
Tip: Industry experts say that the average cost-per-click these days is around 35 cents. The actual cost, of course, can vary widely.
If you’re advertising a bunch of products with a range of prices, or if you want to find out how different conversion rates affect your cost-per-click (or if you hate math), you can create a spreadsheet like the one in Figure 2 to let you determine the most you can afford to bid per keyword for any particular campaign.
Figure 2: A chart like this helps you play around with different costs-per-sale and a range of possible conversion rates. Here, the maximum costs-perclick shown in columns D, E, and F comes from multiplying column B (different possible costs-per-sale) by the percentages in row 8 (different possible conversion rates).
Once you’ve determined your max cost-per-click, you can start figuring out how much AdWords might cost you every day, and how many sales you can expect to get for your daily budget. The charts in Figure 3 guide you through the process.
If you estimate a one-percent click-through rate, a one-percent conversion rate, and 35 cents per keyword, you’ll probably get a ballpark guess on what AdWords might cost—and earn—you. And all of this math may very well lead you to the point of deciding AdWords is simply too expensive or will likely yield too few sales to work for your site. But if you’re still intrigued, you can find out whether Google is actually selling keywords at a price you can afford and how many impressions you can expect from those keywords. Simply sign up for Adwords and play with the Traffic Estimator—a tool for guesstimating just those factors—without spending a dime.