The goal of a successful PPC campaign is maximizing the profit made and making sure the costs are as low as possible. This means minimizing yours bids for them to be enough to guarantee that your ads reach the users most likely to purchase your product. In short, paying as little as possible for traffic that is as targeted as possible. But how do you manage to maximize your profit from PPC campaigns?
It goes without saying that the most important point is making sure to craft a clickable, attractive and interesting ad. The mechanics of crafting a good ad with a very small character limit and tailored for an audience that is trained to just ignore ads until they are really good and interesting would make for another full article, and goes beyond the scope of this one. What we are going to focus on is how to bid intelligently to get the maximum benefit from your ads at the minimum cost.
The first thing you need to do is selecting your target keywords, choosing the ones who will give you more targeted traffic and aren't on such a high demand to become very competitive. You will also need to estimate how much is the maximum you want to spend per click, and stick to it. It depends on how much money that click will make you, based on your estimated conversion rates once the users are coming from your website, and you can use website analytics to fine-tune for each of your PPC campaigns. Once you know your keywords and your budget, you can start managing your PPC campaign bids.
Another point that you also need to consider is that, sometimes, being on the first position isn't better than being on the 3rd or 4th. Users will see all the ads displayed on the first page of results and above the fold (the lower limit of their screen before they have to start scrolling down), and if they are looking for a product they will probably compare links from the first 5 ads.
But money wise, the bids to be on the top position are much higher, so a good rule of thumb is to instead target position number 3. Make sure to increase your bids until you are paying a bit more than the current holder of position 3, but never more than your target cost per click (since this can evolve into a bidding war, with him trying to outbid you for that position).
On the other hand, make sure you're not paying more than is necessary to keep your target position. If your nearest competitor is paying 0.10 per click and you're paying 0.50 to be on top of him, you're spending 0.49c more than you need to, so check that out and close the gaps. Google Adwords works slightly different, in that it will take into account other factors apart from your bid to position you, such as the quality of your website or how many clicks your ad gets, but that means that if you're aiming and paying for position 3 you might end up in position 1 instead. Nothing to complain about, right?
Doing this takes a lot of trial and error (check your position, change your bid, check your position again) so most people opt to pay for software that automates the bid campaigns based on your desired keywords, target position, budget and other factors depending on the program you're using. This kind of software will make sure your bids are minimal for maximum results, and are invaluable if you're running a large amount of campaigns.