Deciding exactly how much to bid for a keyword on Google Adwords can be a complicated business. There are many factors to consider. But the most basic thing you need to understand is what is the highest amount that you can bid for a keyword, and still make a profit?
This is the basic “sales less cost of sales” calculation that we all learnt in school. So if you paid Eur500 for a bicycle wholesale, and the sale price for the bike on your site will be Eur850, then the profit you would make if someone bought it would be Eur350, assuming no other costs were involved.
So ignoring other costs for the purpose of demonstration, if you had bid anything less than Eur350 for the keyword Bicycle and someone clicked on your ad and actually bought the bike, you would make some profit.
But of course, not everyone who clicks on your ad will convert to a sale, and this is where the complex calculations come in.
Google explain this in detail here.
But you can use SEO Tools like Market Samurai to assist you in choosing PPC keywords that have a high amount of Adwords Traffic (AWT) but have a a low enough Cost Per Click or CPC (AWCPC on the Market Samurai tool). Market Samurai also shows you which keywords have a high Click Through Rate or CTR (AWCTR) vs the number of Impressions (times the ad appeared in the paid search results).
But most importantly, Market Samurai help you find keywords with high commerciality. That is words that, when clicked on, tend to lead to higher conversion rates. These are referred to on the tool as words with high Adwords Value (AWV), and those are the words you want to be bidding on. Because the last thing you want is words that get a lot of click that don’t lead to sales, because that will only cost you lots of money.