• Visitor makes a purchase

• Visitor completes a sales inquiry form

• Visitor downloads a white paper and registers

A conversion doesn't have to be a sale. But a conversion has to be worth something to you. If you can't think of any measurable, useful outcome of a visit to your site, do not spend money on pay-per-click advertising - there's no point.

Google and Overture provide conversion tracking - most other pay-per-click services do not, so you'll need to look at third party tools such as Urchin, which is also an outstanding site traffic reporting tool, or GoToast, or my own firm's Xed.

If the pay-per-click service you're using doesn't offer a conversion tracker, and you can't afford to pay for a third-party tool, try something more basic: In a spreadsheet, track the number of conversions, total, per day. Do the conversions increase after you start your campaign? If so, you're likely on the right track. If not, then there's very little chance that your pay-per-click investment is working.

Set a Sensible Budget

A lot of folks ask me how much I typically spend on clients' PPC campaigns. My answer is always 'just a bit less than too much'.

A little glib, I know, but the there is no 'right' amount. It all depends on your circumstances. A good formula, though, is:

cost per click is less than:
conversion rate * total clicks * profit per conversion

In other words, the amount you spend per click should always be less than the total profit earned per click. Let's say, for example, that I'm spending $1.00 per click to bring customers to my (totally fictitious) bicycle shop web site. I know that 2% of those visitors contact me regarding products, and that 30% of those potential customers actually purchase something. I also know that I average $10.00 profit on those purchases. Finally, I also know that I get 200 clicks per month. That puts my pay-per-click campaign in this light:

.6% * 200 * $10.00 = $12.00

So, I'm only earning $12.00 per month on my PPC campaign, but it's costing me $200.00. I need to reduce my cost per click, a lot, or cancel the campaign altogether.

Don't make this a hard-and-fast rule, though. While your initial, direct profit from your PPC campaign may disappoint, you might be acquiring loyal customers.

Going back to my bicycle shop example: At this point, I'm ready to cancel my PPC account and never look back. But I dig a bit deeper, and notice that customers acquired from the PPC campaign spend another $800 each, per year, on higher-margin items that deliver an average profit of $200 per sale - I'm getting loyal, long-term business. That changes the picture significantly:

.6% * 200 * $70.00 = $252.00

Suddenly, my PPC campaign is a narrow but definite success. I'm earning $52.00 per month.

If you can't get this kind of precision, pay close attention to your metrics over time: If your sales, leads or other desired visitor actions increased right after you began your pay-per-click campaign, chances are you're on the right track.

But if you're selling a product or service, I strongly recommend that you invest the time and energy to collect this data and crunch the numbers - it will pay off in the long run.

Find Niche Keywords

A lot of folks aim their ads at the broadest possible terms, such as 'dresses', or 'bike parts', or 'search engine optimization'. Since the broader terms get far more searches, it's a strong temptation - with a big disadvantage. Since everyone bids on the broad terms, the cost per click is generally quite high. And the chances of a conversion, even if someone clicks on your ad, is lower.

Focus instead on narrow, focused keywords: 'Bridesmaids dresses', 'road racing tires' or 'Seattle search engine optimization'. These terms will cost less, and searchers who use them will be far more likely to buy.

Google, Overture and most other PPC services will show you estimated cost per click and searches per day for keyphrases - use these tools to test for the best focus, cost and clickthru combination.

Good Writing: Don't Ignore It

Most pay-per-click advertising requires that you write a very short descriptive phrase about your service. Don't underestimate the importance of this phrase - make sure, at a minimum, that your grammar, spelling and overall language is correct and appropriate for your audience. Also verify that your language adheres to the rules enforced by the pay-per-click service - Google, for example, won't allow ads with superlatives ('the best', 'the greatest', etc.), with repeated keywords, or with excessive capitalization.

Play to Come In... Third

Don't pay for a #1 spot, unless you have a good reason.

Most pay-per-click engines require that you place in the top 3 to get placement throughout their distribution network. For example, a top three ranking on Adwords will get you placement on AOLSearch and NYTimes.com, and a top three ranking on Overture will get you placement on MSN Search and Yahoo.