I get asked this all the time, so I figured I would just create a thread about it where others could share their experiences as well ... how much can someone afford to bid on an ad-supported site? When you have an eCommerce site it's easy to calculate how much you can spend per click. Just use the Google AdWords goal conversion. But figuring this out for an ad-supported site isn't quite as cut and dry.
Here is what I do: Using Google Analytics, I go into the Referrals area and I look to see the average number of pageviews per visit which I get from traffic coming in from Google AdWords (I believe it's listed as Google[CPC]). Suppose, for example, that the average person who comes in from AdWords visits 10 pages on your site during their session.
Now it's time to calculate the revenue generated by a single pageview. For example, suppose your eCPM for a leaderboard ad is $5 CPM and your eCPM for a wide skyscraper ad is $4 CPM. That means that on average, you make $9 per 1,000 pageviews, or $0.009 per pageview.
Now multiply that amount per pageview by the average number of pages viewed by someone coming in from Google AdWords. That means that, on average, you would make $0.009 x 10, or $0.09 per visitor. If you'd like, you can take this one step further by calculating in your repeat traffic.
Now you know that you can bid up to $0.08 per click in Google AdWords to turn a profit.