Tell him that it's an estimate and that if he wants to get the top positions, that's likely what he'll pay but that you will do whatever you can to bring those costs down.

Clients come in all shapes and sizes so you will get a dozen different reactions from a dozen different clients. For example, one wants to spend no more than $4 per lead and that is set in stone. Since he converts at about 33%, no choice but to reduce the CPC, even though the going rates for his keywords are in the $4-6 range and he could make more profits if we increased the CPC (higher position, higher CTR).

If your not familiar with adwords, start small and test different keywords over the next 3 months. Try and find out which words convert and which do not. Then increase your budget on those keywords. Tell your client to give you a small amount of money and come back to him with what keywords are good and at what price.