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More specific, play around with the Ad Words Traffic Estimator tool. Test different Max CPCs and look at your average position, avg. CPC, and avg. clicks per day.
Remember, error on the side of being conservative, you can always modify your CPC later. Also utilize the Maximum cost per day feature to protect you if you make a mistake.
Hope this helps.
>>> how the costing works out?
Let's say you make a profit of $40 by selling your product/service.
Let's assume that your website conversion rate is 1 percent (One out of 100 visitors to your site end up purchasing your product)
That means, inorder to breakeven,
maximum CPC = Conversion rate x Profit per sale /100 = 40 cents per click
If you want to make one dollar for every dollar spent on Google, your average CPC should be 20 cents per click.
This is extremely simplified though and should not be taken as the final word. Some of the keywords maybe more "valuable" to you and you can probably pay more for those.
>>> What is the best way to set your costs.
You will notice that different keywords will be priced differently. First check the minimum CPC of your keywords. You can start off by paying the minimum and then increase the cost-per-click if you are not satified with the performance of your ads.
The alternative is to go for your max. CPC and reduce it later.
It is too early to give you suggestions now - fiddle around with the campaigns and get back over here!