Combining a reduced CPC with a 1% gain in your conversion rate yields a GPM of over 66%.

Impress	CTR	Visits	Rate	Sales	Revenue	Profit	GPM
1000	1%	100	3%	3	£90.00	£60.00	66.6%
Avg CPC		£0.30
Total Cost		£30.00		£10.00

The value of a conversion metric becomes clear when you create a new ad group, and Google offers you the option of buying the "most click possible". This example is taken from an AdWords Tune-Up we did on the campaigns of a leading UK software house.

They'd adopted AdWords recommended Maximum CPC bid of £2.82, yielding 930 visitors per month at an average CPC of £0.44p.

Impress	CTR	Visits	Rate	Sales	Revenue	Profit	GPM
1000	1%	930	3%	28	£976.50	£567.30	58.1%
Avg CPC		£0.44
Total Cost		£409		£14.67

While their campaign was profitable, overriding Google's recommended max CPC with our own (£0.50p) yielded the following result:

Impress	CTR	Visits	Rate	Sales	Revenue	Profit	GPM
1000	1%	840	3%	25	£882.00	£747.60	84.7%
Avg CPC		£0.16
Total Cost		£134.40		£5.33

Note that dramatically reducing the max CPC bid from £2.82 to £0.50p did not result in a comparable fall in traffic (thanks to better keyword segmentation), and produced more revenue from fewer visitors thanks to a significantly improved GPM.

Having a conversion metric for each type of campaign (PPC, CPM, etc.) and product line you offer is fundamental to achieving your advertising goals on Google. Armed with these, you'll always know what you can afford to bid, and the conversion rate your site needs to deliver.

We've taken a few common metrics and put them into a Microsoft Excel spreadsheet for you to download and use with you own campaigns.