How Google Adwords works:

You write your ads and choose keywords or key phrases.

You bid on your chosen keywords or phrases in an attempt to get top placement.

Your ad appears on pages with the keyword you have bid on, if you bid enough.

When a person searches your keyword they have the option of clicking on your ad to learn about you and to purchase what you have available.

Google has a keyword tool that helps you chose appropriate keywords or phrases. It is very easy to use, with easy to understand instructions.

Google helps you design a website for free if you don't already have one. You can use Google Adwords even if you have no website. You just need a product to promote, or choose to promote yourself.

How Google Adwords expands your customer base:

Google's content network partner sites makes popular sites such as AOL, NY Times, etc. available for your ads, meaning quality exposure.

Google's context targeting means your ad will appear next to content that relates to it. For example, if you sell horse blankets, your ad may appear next to an article that discusses horse training. You can also hand-pick sites using placement targeting.

Placement Performance Reports gives you feedback on clicks, impressions, costs, and conversions, enabling you to make intelligent, informed advertising decisions.

The scoop on cost:

You set your own budget. You set a daily maximum amount, and an amount per click. There is no minimum, but you can set maximums so you know exactly what you are going to have to pay.

Google provides traffic statistics and estimated cost for certain keywords so you can make wise choices about keywords and your advertising budget.

You pay only for results. You don't pay for impressions, but only pay when someone clicks on your ad. Though this doesn't necessarily mean a sale, it does prevent paying for your ad appearing without being clicked on.

Location Targeting:

Google Adwords allows you to target only your city, state, or a particular region with a specified distance from you business.

Searches for information about your business give location, contact information, and an image of your choice on a map.

Invalid clicks:

Google has a number of systems in use to detect invalid clicks. They also have hands-on teams that examine click patterns for invalid clicks.

If you have been charged for invalid clicks within a two month period, Google will refund your charges for those clicks.

When your URL is unavailable:

You will still be charged for clicks even if your site is down.

The ability for you to monitor your account means you should be aware of an unavailable URL.

You can pause or delete a campaign at any time so a non-working URL can be detected early and the campaign halted.

The reason for low conversion rates:

High competition can mean low conversion rates. That is why it is important to monitor ROI (Return on Investment) so you can adjust your budget accordingly.

Difficulty in navigating your site can lead to poor conversion rates. It is essential to optimize your site for customer usage, and monitor your conversion rate to indicate any problems.

Keywords and ad text may not be coordinated closely enough. This results in your ads being placed on irrelevant sites and on clicks that do not result in sales.

Google Adwords is a much touted method for marketing online. It has it pits and downfalls, as well as its redeeming factors. The key is to monitor, focus, and “tweak” your campaigns daily. You can't just “set it and forget it.” You have to stay on top or you can spend a fortune with no return. Handled correctly, Google Adwords can be a source of excellent, targeted, inexpensive advertising.