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Combining the numbers, it takes a lot of tweaking. You need to figure out if it's worth for what you're selling to be competing for first page placement or if you're doing almost as good in position 15-30 or so. Usually the price drops quite steep after first 10 placements.
Take one of my sites for example, it sells a membership for a mainstream site. The membership is $29.95. The keywords I'm competing for are around $1-$2 for first page (top 10) placement. I make around 1 sale per 30 clicks.
Easily you figure out that it's hardly worth it to be competing for first page, as that would put us at 30 clicks x $1 per click = 1 sale @ $29.95. In other words roughly just break even and thus not worth the trouble and the risk.
Instead I found that I can get away with paying around 12 cent per click and still be at place 18-25 and I still make around one sale per 30-50 clicks, but this time I have spent roughly around $5 to bring in that traffic to make that sale.
The magic lies in finding and tweaking what's right for you. And in this, nothing is better than lots of numbers, get them all into Microsoft Excel and start figuring out your business ratios. When competing for popular keywords, first page is usually at least for me, not worth it. I make just slightly fewer sales but spend remarkably less by not being so competitive.
And also, this is not static, it changes the whole time, so you'd need to monitor it quite closely, to see that you keep either your position or your spending at acceptable levels.
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