Split testing is a crucial element to the success of almost any advertising program, both off-line, and online. Those that do not actively use split testing usually can afford to do that because of past split testing that has helped spell out guidelines for how users respond to advertising.
How does this fit into managing an AdWords (or any other PPC platform, actually) campaign?
Well, as anyone who has had any experience with copywriting (writing copy for advertisements) can attest, sometimes the smallest change in a headline or a tweak in the body of an ad can produce a big difference in the response to the ad.
In PPC, the element that needs to be tested the most is usually the ad copy itself. When I talk about the ad copy, I am referring to the clickable headline of the ad, as well as the (usually) two lines of text beneath it, and, to a smaller degree, the URL that is generally displayed beneath the headline and two lines of descriptive text.
Often, a small tweak in the way a headline is put together, or switching out a word, can result in a 100%, or even more, increase in CTR (click through rate) of the ad.
To split test headlines or ad copy against each other, most PPC platforms allow you to add multiple ads to your campaign, and then see which one results in a higher click through rate.
One thing to be careful of, however, is PPC platforms such as Google’s AdWords and Yahoo Search Marketing that attempt to “optimize” your ads, and automatically display the best performing ads. Although ultimately, you will probably want to disable all of your lower-performing ads, you will want the ads to display evenly until you have enough data to tell which ads to cut, and which to keep.
Although it is generally good to get a high click through rate, the number that you usually need to pay the closest attention to is the ROI (return on investment).
For example, if you had an ad saying “New BMW for $5!”, you would probably get a rather high click-through rate. However, if the price on the BMW was actually $50,000, you would probably have a very low conversion rate, which would make for a low ROI.
A lot of PPC platforms allow you to track both the click through rate, and the conversion rate, which is the ideal way to track the results of the split testing.

P.S. I am currently able to accept a limited number of additional clients for my PPC management services. Interested in increasing the profits of your website or advertising campaign? Contact me!