I believe that most people fail at Paid Advertising not because they are stupid, but rather they start off their campaign focusing on the completely wrong thing. Most people start a campaign around a certain traffic source (Adwords, Facebook, Youtube). This can quickly lead you down a rabbit hole of fail. Instead, you should shape your campaign around your niche and what you are selling. By doing this, you can estimate how much you can afford to pay per visitor (normally called Cost Per Click or CPC). Once you have an idea of your ideal CPC, you then shop around for traffic sources that fit your CPC goal. How do you calculate your CPC? Here?s the Formula: (Gross Revenue Per Sale/Lead) * (Estimated Conversion Rate) = Your MAX CPC I hope that you know your Gross Revenue Per Sale/Lead, but how do you estimate your Conversion Rate? Generally, a well built campaign has between a 5-10% conversion rate. It also depends greatly on how you monetize. If you are selling a $2,000 elliptical, then shooting for a 5-10% conversion rate is a little optimistic. 1-2% is probably more realistic. If you are getting visitors to submit their email for a free ipad, then you can easily break a 10% conversion rate. A well built email submit can easily convert at 25%. Here are average conversion rates by industry for Google Search and Display (scroll down past the infograph): http://www.wordstream.com/blog/ws/2012/10/29/average-google-adwords-conversion-rates-by-industry Note: I suggest you follow the conversion rates for Google Display for other forms of Display advertising. I?d recommend to start a campaign on the conservative side, as you can always get more aggressive once you determine your actual conversion rate. I suggest using a 2-5% conversion rate for the formula. Here?s an example: I am selling Ugg Boots and my average sale is $200. My Gross Revenue is $150. The average conversion rate for the Shopping Industry for Google Search is: 3.58% and for Google Display is: 2.19%. I want to start of very conservative, so i?m going to expect a 2% conversion rate. Time to plug in the formula: $150 * 2% = $3. So I can afford to pay a maximum of $3 per click to breakeven at a 2% conversion rate. After a look at Google?s Keyword Tool, we can expect to pay between $1-1.50 for Google Search, and probably less for Google Display. Now you may wonder why everyone else is bidding $1-$1.50 when we can afford $3 per click. That?s because most of the bidders are probably retailers who do not have a Gross Revenue of $150 for $200 Ugg Boots. In fact, we can probably reverse engineer how much their Gross Revenue is with this formula: (Cost Per Click)/(Estimated Conversion Rate) = Gross Revenue. ($1.50 CPC)/(3% Conversion Rate) = $50. A Gross Revenue of $50 for a retailer selling $200 Ugg Boots sounds very realistic to me. Now what if Google?s Keyword tool told us that we could expect to pay $5-7 per click. Well then we know that Google Search probably isn?t the right traffic source for our campaign. By quickly calculating our Max CPC, we saved ourselves a bunch of money by not ignorantly jumping into Google Search. Having said that, Google?s Keyword Tool is often inaccurate and almost always incomplete, meaning it shows only a fraction of the keywords in a niche.. Even if the Keyword tool showed a $5-7 CPC, I would still setup Search & Display campaigns. Why? Because I will set my max CPC to $3. What?s the worst that can happen? I get zero volume at $3 because everyone else is outbidding me. Zero Volume = We didn?t lose any money. To sum this post up nicely, you want to start off your paid advertising campaign informed of how much you can afford to pay per visitor. If instead you start off your campaign ignorantly, you can quickly find yourself bidding on $5 clicks when you can only afford $3. You might as well burn your money for heat. Cheers, Nick Kneuper TLDR: Minimize Risk. Maximize Potential. Know your CPC before you PPC.