I've just started using adwords for actually selling a product (earlier I was using it just to get traffic). It isn't converting too well for me. Hardly any of the people who reach my site through adwords buy anything. Am I losing out because of click fraud or is it normal to have conversions of X% (X<5)?
5% is a good conversion ratio for sales - not all clickers that visit your site will buy your product ok? your first step now is to calculate your max bid: how much you earn per sale? lets say that you earn a mean value of $20 per sale (already discounted all your your costs). So you decide to share 50%-50% with Google in beginning: this gives you $10 per sale - so your max PPC is: $10 x 5% = $0.50 If in your case the PPC result is too low you can change the share 50-50 to a bigger share to Googe in beginning. Now you need to research to increase X% and increase your CTR% to bring you more profit.
1.5% is quite low. If 1.5% is the norm, then I've been quite lucky getting a higher conversion rate than that.
I've found that the covertion ratios increased heaps when I advertised only on google's search only, rather than through publishers
Don't forget that price of the product is also very important. Naturally you can't convert every other visitor to buy $1000 product, but for $9.90 product it is possible. Also you need to look carefully your ads. Do they attract tire kickers a lot or are you offering freebie and everybody just downloads and then go away. If your ad is vague, it might attract people but they have wrong expections about what you are offering and when they realize the truth they will click back button. So main thing to do to improve your convertion ratio is to carefully test different ads and improve your sales copy. With good enough sales copy you can suck in even those who came with wrong expectations.