How do I find out the best keywords to target?

The "best" keyword depends on the following main factors:

1.) The amount of traffic it will generate.
2.) The difficulty of attaining a top ranking.
3.) The profitability of that keyword.

In this answer I will address each point and give recommendations on tools to use to help you in your assessment.

The Amount of Traffic it Will Generate
Often people choose keywords based on how popular they think they may be. Mostly it is based on "real world" factors rather then fact which is readily available. For instance, I recently saw someone who proposed they were going to go after the term "nursing homes" due to the aging population.
Although this area may be growing quickly, those interested in finding out more information often do not use a computer or if they did, would not be researching it online. Although they would still get visitors, they would find there are much better keywords to target with profit in mind. When it comes to traffic, the best measurement is actual searches. This will tell you how many people search in a day or month for that term and it can be a great indicator. By far, the most popular tool for finding this out is the Keyword Suggestion Tool. This tool combines the two most popular ways of judging popularity, Wordtracker and Overture. In addition, it suggest related keywords and lists their traffic. Always remember however, that this is total searches. These search numbers will always be divided among the SERPs.

The Difficulty of Attaining a Top Ranking
If you simply chose the keywords with highest amount of traffic, you could still lose money. This is because these keywords typically warrant a lot more work to rank for. A perfect keyword is one that has a lot of searches but little SEO competition and moderate to easy to rank for. The best tool I have found for this is the Keyword Difficulty Tool created by Rand Fishkin. It will give you an indication of the amount of SEO work required which you can balance against the number of searches.

The Profitability of that Keyword
There are also keywords where you may get 1000s of visitors with only one conversion while others where you can achieve 1 for every 100. This should be factored in as unless you make your money per impression, you want the highest number of conversions per visitor. The best way I know to evaluate this is to run an AdWords account. The amount of data you receive by starting a campaign can be very useful in establishing the conversion rate. I believe it is always better to spend $10 to find out a keyword isn't profitable then to spend 6 months getting it to number one, THEN find out its a dog.

The moral of the story is although there is no such thing as a "perfect" keyword, you can find the best ones for you by using a combination of the factors above.

Answer provided by: yfs1