Be presentable. Bids are the amount you're willing to pay for a click and are critical for determining where your ad will be presented on the SERP (search engine results page). Google and Bing do not operate their auctions purely on the basis of bids, which means that the best position does not always go to to the highest bidder. However, bids are the single most important factor for influencing the outcome of the auction. Generally, if you set a higher bid, you will serve in a better position closer to the top of the page. Learn more about how the Google auction process works.
Psst... want to know a secret? While bids are set based on how much you're willing to pay for a click, you often won't pay your full bid. This is because Google and Bing will only charge you $0.01 more than what the next bidder below you has bid. Simply, if you set a bid of $5 for a particular keyword and the next highest bidder bids $3.50, you will end up paying $3.51 for the top position.
Pro-tip: Bids should always be set based on a specific goal, usually a target cost per acquisition (CPA) or return on ad spend (ROAS). However, you may also decide to change your bidding strategy based on other strategic initiatives or tests, including maintaining a certain target position or driving up cost for a competitor, or maintaining a certain position.