A common mistake that many new AdWords advertisers make is to set their daily budget too low. Remember, your daily budget instructs the AdWords system as to how often your ads should be displayed throughout the day. If your daily budget is low, AdWords will deliver your ads evenly throughout the day (provided you have not selected accelerated delivery), and depending on how low your budget is this could result in spotty delivery that will net only low returns. If you set your daily budget higher, you will generate more ad impressions (and more opportunity to generate leads or sales), as well as more market data to base your PPC strategies on, ensuring a more successful campaign.
There is a tendency to be stingy with daily budgets, usually driven by a fear of spending too much in a single day. This is justified, however low daily budgets simply don't generate enough data for analysis, and a key to being successful with AdWords is to test your campaign's performance by the numbers. Since AdWords follows the concept of the law of large numbers, it isn't possible to successfully analyze trends with only a handful of data, which is all that can be expected from a low budget campaign.
Instead, aim high with your daily budget! Even though it's a bit scary inputting a daily budget that feels outside of your financial reach, you can still monitor your spending throughout the day and pause the campaign if your spend is going beyond what you can afford. It's more likely however that your high daily budget won't be met.
For example, I manage a campaign where the maximum we can afford per day is $500. I get much better performance out of the campaign however if I set my daily budget at $1000. At the end of a day, my spend usually hovers around $400-500, fitting perfectly within the range of what we can afford. I monitor the account throughout the day to make sure we aren't going over budget, and if this is not something you can do, then it might be wise to stick with a lower budget. (Sorry, but the best AdWords accounts are not setup and then let loose to wander freely. Successful AdWords users have a finger on the pulse of their account activity on a daily basis.)
In the end, setting a higher daily budget will not only result in additional impressions, but will also provide you with the meaningful data you need to accurately project costs versus sales, and ultimately determine your daily profit (or loss). Knowing your average CPC and comparing it with your actual sales will allow you to adjust your daily budget and bids in an informed way, ensuring a profitable PPC campaign.
UPDATE: This information is now almost four years old so I can't speak to the accuracy of it, but check out the revered AdWords Advisor (a Google employee who provides AdWords tips & tricks in various marketing forums) on Google's calculation of the suggested daily budget. Note the daily budget optimization tip at the end: reduce the number of keywords by weeding out poor performers.
PPC Primer is written by web developer and search marketer 
