Whether you are trying to build an organic presence on search engines or starting a paid campaign, your first step should always be to define the keywords that you wish to target. There are three important factors to consider when selecting a search phrase: search volume, competition and marketability.
Search volume: The approximate number of people that search using a specific phrase on a monthly basis.
Competition: The measure of how difficult it will be to achieve a high ranking for the specific search phrase.
Marketability: Likelyhood that a percentage of the visitors will be interested in your products or services. Unfortunately each of these factors involve a large amount of guesswork but making educated guesses will help determine the ultimate success of your web presense.
Search Volume
There a number of different tools to provide insight into relative search volumes. The most popular tool is Google's AdWords Keyword tool - http://adWords.google.com/select/KeywordToolExternal When using the AdWord keyword tool be aware that the traffic numbers reflect total search across the ad network, not organic search. Due to this the numbers are often much higher that real search volumes. In order to have a better idea of actual search volumes the correct tool to use is Google's Search Based Keyword tool - http://www.google.com/sktool If your looking for greater insight into search trends, surprisingly the best Google search tool is Google's Insights for Search tool - http://www.google.com/insights/search Insights is a great tool to examine comparitive search volume and answer the question of how do most people search for my business. Using a combination of these tools you should be able to create and order a list of terms appropriate for your website. Once this has been created the next step is to examin the competition.
Search Competition
Targeting the number one searched phrase isn't always the best strategy. It's important to examine the playing field before selecting the phrase to target. If your website isn't on the first page you can count on missing at leat 90% of those searchers. If your site isn't in the top 5 positions you can also expect half of your visitors to never make it to your website. All of the above mentioned tools provide competition metrics, however in order to dig deeper commericial tools like Trellian's Keyword Research Tool offer much greater insights into the strength of competing websites.
Marketability
The final piece in the puzzle is the marketability of the keyword. Many people mistakenly assume volume is the most important factor but forget that traffic doesn't always equal sales. A good example is a vendor selling ladies running shoes. The search term "shoes" is used far more frequently than a term such as "ladies running shoes" however the searcher's intent for the later term is directly related the the vendors product. Start any optimization campaign by focusing on the most specific searches related to your products. You can always expand your scope to more generic terms at a later date.