CPC vs. CONVERSION RATE

Ok, bare with me I'm going to lay this question out the best I can...

In one of the Warrior Threads I was giving a rule of thumb to go by before starting a PPC campaign on adwords, or any other network for that matter. The rule of thumb was a mathematical equation that does make sense.

1 out of 100 clicks = a sale [ worse case scenario ]

So say your cost per click is $.30, .... $30 would get you 100 clicks. And you make one sale and get a commission of $30 you break even. I was told to play it safe never start a PPC campaign where your cost per 100 clicks exceeds you commission amount for one sale.

Now, on Google keywords tool... it gives Estimated CPC for first page placement...or position 1-3. Some of the prices like mesothelioma are $25 a click. But lets say you want to market a product where you get $80 a sale in commission, but that market or keyword for that product is showing in estimate of $5 a click, where as 100 clicks would cost you $500. Now, going by worse case scenario, you make 1 sale out of a hundred clicks getting you $80, but you just spent $500 lol....

There are 3 possibilities out of this.

1. People really aren't paying $5 a click
2. They are making more than 1 sale per hundred clicks, enough to cover the cost of 100 clicks , plus more.
3. Both of the above

So... here is my question, actually a few. Even with QS's of 7 and 8, if I run a campaign for this particular product, I will be paying $5 so do I need QS of 10 to lower the CPC?

Like the example above.... where my cost per 100 clicks = $500, and a 1 sale gets me $80, I would need to make at least 7 sales per 100 clicks to make money. How do you know you would make 7 sales per 100 clicks without testing it and lose money? ROFL

I'm afraid to start a campaign like this where I'm giving a worse case scenario on all markets of 1:100 until later proven other wise. Do people really pay $5 a click on some products where they get only $80 a sale? Because that would mean they are at least making 7 sales per 100 clicks. Nobody would run a campaign like that other wise.

So whats more practical.... lowering your CPC which seems impossible as I can't get above QS of 8, or just pay the $5 and gamble that I would make 7 sales per 100 clicks?

Plus how accurate is Google Keyword Tool. I notice on my campaigns it saids max bid is below first page estimate but I'm still on the first page. Does this mean when Google says estimated CPC is $5, it is geared towards making people who don't know what they are doing to pay the STUPID TAX?

Is it just about testing and gambling $500 away to see if you make 7 sales? What other way can I see or research how well a product converts?

Do you guys focus more on lowering CPC, or raising conversions rates or both? What is easier in your opinion.

Thank You....