Adwords is a valuable tool to get Internet advertising, one of the few Google tools that is no free, and also not cheap (using it you realize from where come the billions of dollars that Google have). The problem is precisely this: Any wrong use of the tool will cause lose of a lot of money for nothing.
Adwords allows us to place our ads on two sites, Google searches (when someone does a search, our ad will come out with the results) and the affiliate network (our ad will appear in the websites that have hired advertising like Google Adsense). Adwords only charge us when someone clicks on our ad. To know when to show an ad and not another (or the order of appearance), there are keywords and CPC (cost per click). We define a set of keywords (compound words) that define our product, we assign each keyword a maximum CPC. For example: If our Adwords campaign is to announce an online retailer of boots, we will have keyword called "boots". So if someone searches on Google for "boots", our announcement could come in his search results. Then is when it enters the maximum CPC, for example if another announcer has also in his Adwords campaign the keyword "boots", the ad of who has placed a higher maximum CPC will prevail (or the two ads can be shown, but one above the other). This means that the more you're willing to pay per click for each keyword, the more likely is out the first ad for that keyword. The rarest keywords pay less than the more usual, because the rarest have less competition, but of course also attract fewer users.
But not everything is that people click on your ad, you must attract the right people, users who actually might be interested in what we advertise. If we discover that some users clicks are coming from searches or pages that have nothing to do with our ad, we must eliminate or modify the keywords that trigger them.
To make a good Adwords campaign, you have to follow some guidelines:
If you want to fine tune the money invested on Adwords for a product, you must do several campaigns for it, each focusing on a specific audience (age range, region, country) because each audience has its peculiarities.
For each campaign, create multiple ads and in each ad combine different keywords. This will help us to discard those ads with fewer clicks. It is important that the ads mix generic keywords (eg "building websites") with more specific keywords (eg "Joomla plugin").
When creating keywords, you have to think them very well, because bads keywords equals to wasted money. Put few generic keywords, because they attract many clicks but most of them do not have to do with our ad, and also tend to be expensive. Best use many elaborated phrases as keywords. Then over time, you will see what keywords are more effective in attracting the right people. We must put individual CPC for each keyword, for keywords that have more competition you have to raise the price.
Also put negative keywords because they clean the results a lot (For example, if you do sell, put the keyword "free" as negative).
It is very important to link our Adwords account to our Analytics (not linked by default), it will help us figure out where it comes from the people who clicks on our ads. We must also consider whether the clicks that come from searches or affiliates are good, and if one of them are bad, we can remove it (there are many people who complain that the clicks that come from affiliates are often garbage).
If we put a daily limit spending, be careful not to spend that money too fast and then stay the most of the day without ads.
In short, try to get out above the competition, which cost us good money.