Please Help Me Understand How to Stop Losing Money

Hello,

I am trying to make sense of PPC advertising and how to make it profitable. I have dumped a few hundred into promoting affiliate offers via a "advertorial/review" type site and have yet to make any money.

Let me explain the situation.

I created a site that looks like a consumer report. I then selected two offers the affiliate manager at the network I am with said were high converting. I looked at the EPC one was $7 the other was $3 something. That is a combined epc on the two offers of $10. Theoretically, shouldn't I be able to make money as long as my keywords cost less than $10?

The affiliate manager looked at my site and said he thought it was a winner.

I set daily limits on Yahoo and Google of $40 and $45. Google gave my site a quality score of 7/10 my max keyword bid was 3.15 per click. My average keyword cost was something like $2.80.

I had what I would consider highly targeted keyword phrases. I did not place them in quotations or brackets and I didn't use any negative keywords. For my ad I ripped another ad's text that I have seen running for a while now and that I guess must be working. In only 20 something clicks my $45 limit was used up.

Now, lets assume that the landing pages of the products I am promoting convert at 1%. It just cost me $45 for 20 clicks. If I project that out and multiply it by 5 theoretically, it would cost $225 to drive 100 visitors to the site.

Assuming a 1% conversion that would be 1 in 100 converting. So, it would cost me $225 to get a $32 dollar commission.

I am trying to understand how it is possible to earn money like this? I am just baffled by the logic here.

People must be making money because I see them advertising. I go to keyword spy and see other advertisers. Can someone please tell me how this is possible?

After reviewing a number of keywords in popular niches (diet,bizopp,health &beauty, credit repair, etc...) most of them are at least $2 and many of them much more.

I can understand if you are selling your own products you could probably afford to loose some money on the front end if your lifetime customer value were good enough but what about affiliates. We don't really have a lifetime customer value?

I would really appreciate if someone who is actually making money as an affiliate buying PPC, PPV, CPM could tell me how this works and explain the mathematical logic.

Thank you in advance.