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Great question. I'm probably not far from a first ppc venture too, so have been wondering same.
I get exactly what you're saying about the bidding wars on top positions, and I think it's a major trap for new players - particularly if you don't know what your conversion rate is (and in a lot of categories I'll bet half those paying for top placements don't know).
It stuns me when I see a spread over the top three listings of, for example, 57 c, 42 c, 34 c.... and then the ten or so below are paying in the region of 5-12 cents apiece. I wonder whether that No 1 position is really worth 4 or 5 times what the No 4 is paying.
My cynical side says it probably isn't - particularly when you look closer and start to read the actual Page titles and descriptions. There are an awful lot of people out there paying for position and then thinking they don't need to do any more than that... titles and descriptions that are less than helpful or down right unattractive, or worse, misleading.
One advantage I have in my position is to stand over the shoulder of a number of users and watch how they actually work and think. Very very few people actually just click on the No 1 result automatically. Experienced users scan quickly over the page and look for the title and description most likely to benefit them, even if it is ranked 15. Novice users sit for a second and absorb the page and because they are hesitant to click on anything, will also read and look for relevant info to let them feel confident about clicking (they are more likely to stick to the top ten or first page though).
On that basis I'd probably go something like:
1 Decide where the break is on the first page between those playing the 'one-up' game and the rest... ie, the 12 cent mark in the example above.
2 Decide if that level is within reason given my conversion rate and is gonna make me money.
3 If it is, bid at that level or a level below that which will land me in the top ten.
4 Make sure I can cap the process somehow - a maximum spend per month.
5 Make sure my site title and description are spot on. Attractive enough to get people in; clear enough that they're coming in for the right reasons.
6 Review. If it isn't drawing either the hits or the sales, before I increase the bid and try to climb the ladder I'll look long and hard at whether they keywords chosen are actually appropriate.
Those .05 clicks you were looking at might be just the thing, but you should probably search on those words and see what sort of results you pull up before getting carried away too.... one thing I've learnt is that if I call something a widget, everyone else probably calls it a doodad, and vice versa.
Just a few thoughts :)
