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Selecting keywords and keyword phrases sounds like a simple task but the reality is that choosing the right keywords can be a challenge.

There are two main components to selecting good keywords, relevance and popularity. If you select a keyword or phrase that is highly relevant but is never searched on, you will not prosper. Conversely, if a word is incredibly popular but not relevant to your offerings you will not have a good conversion. So, while you might have web traffic, none of the traffic will be targeted. The key to selecting good keywords is striking a balance between relevance and popularity. The more relevant a term to your product or service offering, the more likely the website visitor will convert to a sale.

Generic keywords result in lots of impressions (views) but usually result in few click-throughs. More than that, generic keywords do not result in qualified traffic. Unqualified traffic is less likely to convert to a sale.

Keep in mind, keywords can vary based on the searchers age, culture, region, education or knowledge. In other words, you need to define your target audience, then select keywords or phrases your target audience would likely use when searching for your product or service. You may need to create multiple keyword groups to target different audiences or demographics.

Example:
Say you have bird watching software, hobbyist might search "bird watching software" while professionals might search "orthinologist software". If you have both a low end, and a high end version, it might be appropriate to target both audiences.

Keyword phrases should be 2-4 words in length. Single words are too general, searchers now rarely search on a single work. Additionally, multi-word phrases are of a higher quality and they are "lightly filtered". According to a OneStat.com survey from February of 2004:

81% of all searches contain more than one word.
19% of searches contain one word
32% of searches contain two words
26% of searches contain three words
13% of searches contain four words
10% of searches contain five words

Keywords should be used as a filter attracting visitors who have a a genuine interest in your products or services.

1. Misspellings
Optimizing for common word misspellings will increase your audience, the easiest way to capture misspellings without compromising your professional image is to use forums where users are posting, or use actual questions from your customers in a FAQ or an "ask us" column. The questions there are posed in the customer's real words, and may contain the misspellings.

2. Stemming
Word stemming is the practice used to capture traffic surrounding a single root word and its derivatives. When searching for keywords make sure to optimize for a word's various forms and word stems.

Example:
orthinologists and orthinology are word stems.

3. Synonyms
Synonyms are different words with similar or identical meanings. The best place to locate synonyms is the thesaurus.

Thesaurus - http://thesaurus.reference.com/

4. Geo Modifiers
If you are targeting a specific region you can use geo (geography) modifiers which will use locations to filter your traffic.

Example: chicago custom software

5. Purchase Modifiers
Studies show that individuals interested in purchasing often will use purchase indicators in their search terms. Enhance your listings by selecting keyword phrases that include purchase modifiers.

Example:
buy +
purchase +
compare +
shop +

6. Combination Tumbling
Be sure to mix and match words and word order to increase your search phrases.

Locating great keywords can be a bit tricky and time consuming, but it is undoubtedly time well spent!

Clustering Engines - Tools for locating related keywords.
Vivisimo - http://vivisimo.com
Clusty - http://clusty.com/
Quintura Search - http://www.quintura.com/
Google Sets - http://labs.google.com/sets

Keyword Suggestion Tools
SEO Book - http://tools.seobook.com/general/keyword/
Overture Keyword Suggest - http://inventory.overture.com/d/searchinventory/suggestion/
SEO Tool Keyword Suggest - http://www.seochat.com/seo-tools/keyword-suggestions-overture/
SEO Logs - http://www.seologs.com/keyword-suggestion.html
Digital Point Keyword Suggest Tool - http://www.digitalpoint.com/tools/suggestion/

Related Articles:
The Keyword Search
Some Countries Convert Better than Others
Keyword Research Tools