Amazingly, even AdWords professionals sometimes donít know the arithmetic that must go into determining your maximum Cost Per Click for a keyword or ad group. But setting it correctly is crucial to optimizing your campaigns. So let me spell out in simple terms how to do it.
Basically, to set the maximum Cost Per Click (Max CPC), you need to decide what average Cost Per Click (Avg CPC) you want. Since the Max CPC puts a cap on how much you are paying per click, it in effect controls your Avg CPC. You can tweak your Max CPC to get the Avg CPC that you want.
But what Avg CPC do you want? To determine that, you need to know to other things, namely (1) up how much you are willing to pay per conversion (Iíll assume you already know that, so I wonít get into how to calculate it) and (2) your conversion rate, CR (typically for a given keyword or ad group).
Now, your Avg CPC = Cost Per Conv * CR; so you want to pay no more per click than the cap you set on the cost per conversion, times your conversion rate.
And you set your Max CPC somewhat above that maximum Avg CPC that you are willing to pay. You can adjust it to result in the Avg CPC that you want.