Google’s AdWords system works brilliantly for certain products – ones which people need, and are looking for. Conversely, if your product is something people didn’t know they wanted, it’s useless; although as an advertiser, it won’t cost you anything if your ad never shows or gets clicked on. The real waste in AdWords spending turns out not to be in advertising products which nobody’s looking for. It’s in spending too much and not looking at the return.
Think about AdWords like you would eBay. The highest bidder wins the day, it’s true, but when you make your bid, you set the bar at the highest price you’d be prepared to pay for the item. Like any auction, if it’s worth more to someone else, then you’ll just have to let them have it.
The same applies to AdWords. There’s a certain cost-per-click which will represent breakeven, and your upper bid limit should be less than this. Supposing you’re trying to get people to your website to make an enquiry and download a datasheet, and you think that’s worth £40 to you. If 5% of the visitors you attract actually download that datasheet, you can afford to spend no more than £2 on getting each one there.
Now, it may be that a £2 bid will get you to the top of the AdWords ads for your chosen keywords, resulting in lots of traffic. But if it only gets you to the bottom of the column of ads, and you get fewer clickthroughs, so be it. Ten profitable leads are better than a hundred loss-making ones. Like an auction, never get carried away.