An advertiser looking to drive conversions is using manual cost-per-click (CPC) bidding. Which factor should be most important for this advertiser when keyword bids are decided?
The profit derived from a paid click
The bids of the next closest competitor
The cost of the bid
The Quality Score of the keyword
How do you know what CPC to set? You can figure this out based on what you know about your business and the value of a sale. For example, if you sell US$5,000 diamond rings, one new customer is probably worth more than if you sell US$0.99 packs of gum.
Once you’ve set max. CPC amounts that you’re comfortable with, see how many clicks your ads begin to accrue, and whether those clicks lead to business results on your website. Also, remember that Internet traffic is always changing, so it’s important to re-evaluate your CPC bids regularly.
Read more here: https://support.google.com/adwords/answer/2464960?hl=en