Conversion Rates show the percentage of users who have clicked onto your website and have then gone on to complete a goal you have set in your Adwords account and therefore that user has converted into a sale. A good example of a conversion rate is; if you have an eCommerce website a goal would be for a user to purchase something off your website and so the conversion rate on your PPC campaign would show the percentage of users who have clicked-through on your ad and then bought something. Some companies also track enquiries with conversion rates, perhaps if you have a brochure site this would be more suitable, or you can set any goals you wish such as if a user goes to a certain page on the site.
PPC Specialists know that conversion rates are very useful to companies who are looking to track the number of goals that their campaign is acquiring. With Google Adwords you are able to see the number of conversions and the cost of that conversion as well.
The average cost of a conversion is worked out by looking at the total cost of the campaign (the total cost of the clicks) and dividing it by the number of conversions. However, you can look more closely at your ad groups to work about a more specific cost per conversion by looking at the total cost that ad group and the number of conversions that ad group has generated, and you can even drill down further to see the costs that each keyword has created. If you drill down too far the costs per conversions won't really be appropriate because it ignores the other ad groups and keywords that have accrued costs but not conversions.
Another benefit of using conversion tracking is that it enables you to see where your sales are coming from, you may only want to advertise on the keywords that are bringing in conversions or alternatively you may choose to push more budget on the keywords that aren't doing so well so that they have more chance of improving.
You can also track your campaign statistics using Google Analytics which you are also able to link to your Adwords account as it is another tool created by Google to help your online marketing succeed.