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.

Using online keyword tools can help you in a multitude of ways. First, they will give you tips on similar or related words, phrases or word groups for your product or service. Then, they can help you determine which among these are popular. Also, some will help you estimate the importance—and therefore the cost—of your desired keywords in the hierarchy of things.

Two of the most popular free tools are Google’s own AdWords Keywords Tool, and Overture.

Google AdWords Keyword Tool. Simply type in any, and any number, of your desired key words or phrases, and this tool will come up with other, related possibilities, with visual indicators of popularity (how many times that keyword is searched relative to others), competition (how many other advertisers use this key word or phrase), and will allow you to add the keywords outright with a simple click of an “add” button. You have options such as constraining your search to a broader or more limited set.

Overture Keyword tool (now Yahoo Search Marketing). Overture used to be a search-related marketing company until it was acquired by Yahoo! and then subsequently developed as its own Gogle AdSense-like service. While the Overture keyword tool is not free, publishers and advertisers on Google AdSense can likewise sign up for an Overture account. What’s great with Overture’s keyword tool is that it actually shows how often a keyword has been displayed and saearched for.

There are several ways to determine the best keywords for use in your AdWords campaigns. You can probably do trial and error, but if it is absolutely critical for you to get the best results outright, you should familiarize yourself with tools that help you arrive at the best key words, phrases and combinations for your campaign.

Here’s a rule of thumb when choosing keywords or phrases. They should be specific enough for getting quality visitors, and popular enough to get volume traffic. But the keywords, phrases or combinations thereof should not be too popular that the competition would be too tough to render you any optimal positioning, or would require you to submit bids that are too high for your budget, in order to get top placement.

Being specific is subjective, and should be of your own choice. The following are examples of tools that would help you determine popularity, and competition in keyword selection.

• The Google AdWords keyword tool
• Overture (now Yahoo! Search Marketing)
• Crossword Complier
• Espotting
• 7Search

Some, like the Google AdWords Keyword Tool, are free and available for use by anyone. Others, such as Espotting and 7Search, are commercial offerings, and would require users to subscribe or pay before enjoying the benefits.

We shall discuss each tool of note in detail next.