One benefit of using Google AdWords is that you have direct control over how much you want to spend on your ad campaign, and that you can track the actual cost of each transaction or click. Say, you’re on a tight budget and you want to be sure exactly how much you spend for ads in a month, AdWords makes it possible for you to define just this.

One way of controlling costs is by determining the maximum cost per click (CPC) you will can afford to pay for your ads. Generally, the following rule of thumb would apply, especially if you are selling a product on your website.

Cost per click to reach break even point = ( Profit Per Sale in $ x Conversion Rate ) / 100

For instance, you are selling a product wherein you would profit $60 per customer or per sale. And your conversion rate—that is the percentage of people who click on the ad and visit your website who actually make a purchase—is 1 people in 100, or 1%. Both these figures would be put into the equation.

• Profit per sale: $60
• Conversion rate: 1%

Therefore, we would compute maximum CPC as ($60 x 1) / 100, which is equal to $0.60. This means you can afford to pay a maximum of $0.60 per click to break even. If you want to realize a profit, then you should set your AdWords campaign to pay a CPC amount lower than $0.60.