Using Google's keyword tool
Not sure if you have noticed but Google has a very in depth guide to Adsense and Adwords, and some great tools to go along and its free. Yup.
https://adwords.goog...ordToolExternal
Using this free tool that was made available in 2006, you can literally analyse any keywords that has been used by searchers using Google.
You will be able to :
1. See what is the demand is like for a particular keyword or phrase
2. See how competitive that keyword is.
1+2 = niche
With just these 2 sets of data, you will realise which keywords you should be bidding on at the lowest possible price while getting a decent search volume without having to fight off everyone by paying more PPC.
Now, if you are smart, what you will actually do before you go into making a website and all is to actually building the theme of your site or page around the very keywords that you have analyse and found to be affordable and yet provide a decent amount of volume.
You might ask why do you need to do that when you are already paying for ads that will lead people to the site.
Well, you have to remember that you want to have a good chance that your site will get into the top 10 as well when users search for those keywords..(there is a limit to how much you can afford on PPC advertising right?)
And yes there are those who will never ever click on an Ad, so being well placed on a search does help addressing this group of audience.
All these and more are available on various sites and forums if you do a search.
You will be surprised to learn how creative people can be in using this tool to help target traffic to their site.
Good luck!