#1 Is the Best Ad Position! … Or Is It?
A common assumption about paid search is that position #1 is the ultimate goal. Advertisers clamber over each other to ensure their ads make it into the top position, because they think that’s what’s necessary to be successful for their campaigns.
However, I’d like to go on the record and make a bold statement: Position #1 isn’t always going to be the best ad position for your business. Yes, while position #1 certainly can’t hurt from an impression/visibility standpoint, it might not be the optimal position from a conversion/ROI standpoint. Google’s bid auction  ensures that the higher you bid, the more likely you are to appear in a higher position. (Notice I said more likely, not guaranteed – the Quality Score system offers discounts  for relevance.) But, are you bidding (and ultimately paying) too much to appear in those premium positions? It’s possible. That’s why shooting for position #1 isn’t always the best strategy.
If your business is a mom and pop store selling hardware supplies, and your competition is a big corporation like Home Depot or Lowe’s, chances are they have a much larger wallet and can easily bid as high as you without even breaking a sweat. You don’t want to exhaust your budget trying to compete with the big kids – you’ll never turn a profit!
Just because your ads aren’t appearing in position #1, doesn’t mean they aren’t being clicked on or that potential customers aren’t coming to your website and considering your products or services. Remember that the top of the search results page contains three ad positions, so even if your ads have an average position of 2 or 3, your ads will more than likely receive clicks and you will generate website traffic. Even if your ads appear in position 4 or 5, they will still be close to the top of the search results page; on the side of the search results page. So there is a solid chance your ads will be seen. People using paid search are typically in more of a research stage, so they are probably going to click on more than one ad before making any serious purchase decisions.
Something else to keep in mind is the industry that you are advertising in. The more competitive the industry, the more expensive the clicks will be  (think of the insurance or legal industry). This goes back to my point just above about shopping around. You can feel pretty confident that if your ads are in positions 3, 4, or even 5 in a competitive industry, they will be clicked on.
Ultimately, it comes down to maintaining and hopefully growing your profitability. You don’t want to bid too much, to the point where your ROI is being negatively affected. Only you know where that line is though. It’s important to play around with positioning. If your ads are in a position that is providing profitability, but you still have some budget to spare, try increasing your bids a bit to land in a higher position. Conversely, if you can spend more, but are not seeing the desired ROI, trying decreasing your max CPC bids.
If you are unsure how much to adjust your max CPC bids by, start with 25%. As with any change in paid search, the adjustment should be relatively small, for the sake of monitoring; this applies for bid adjustments  as well. Something else to keep in mind is that you can view the first page bid estimate and the top of page bid estimate for each of your keywords. This will also give you an idea as to how much you need to bid for your ads to appear in the desired position of the search results page.
It all comes down to defining the point at which you will become profitable or not.