Welcome to the forums! Nice to see you here.
You are in a competitive industry, I just reviewed a site last week in Chicago for one of your competitors.
I was surprised to find out how many people are searching for dog beds. (Actually, floored was more like it.)
First, let me offer a word of advice on Pay-Per-Click... stop worrying about spending enough to stay in the top spot. Pay-per-click doesn't make a lick of sense if you are spending more than you are making. All you are doing is losing money and making more work for yourself...why would you want to do that?
If you haven't already read them, check out these two articles:
Help Set Your Budget With PPC Calculator: http://www.searchengineguide.com/laycock/005011.html
If You Aren't Number One...You Still Get Customers
Once you've done that, think things through a bit more with your pay-per-click campaigns. It's very easy to get caught up in a bidding war thinking that you HAVE to be number one. Then, all of a sudden you find out that you have no money left and you haven't made enough sales to cover your loss. That's certainly no good.
Next, have you done keyword research to see what types of niche phrases you might be able to target? Phrases like "dog bed" are not only competitive, they aren't very tailored. A lot of people searching for that phrase are just in the research phase. They aren't necessarily ready to buy. Even if they are, they'll come to your site and have to sort through all the types of dog beds that you offer.
If you can get your ad/site in front of them for more specific terms, and send them straight to those products, you're going to increase your chance of making the sale. Plus, those more specific terms often have lower costs associated with them because tons of site owners haven't figured out this "trick" yet.
I did a quick check on Google and I see that about 2.4 million sites have the word "dog beds" on them. That's fairly competitive.
Now, according to Wordtracker, about 608 people a day search for dog beds. Let's say that you manage to get your site in front of half of them. That's 304 searchers a day.
Let's see if we can come up with 300 people a day using more specific phrases that will cost you less and be more likely to convert...
(again, I'm going to use Wordtracker estimates)
fancy dog beds - 46 searches - 9,130 listed on Google
small dog beds - 21 searches - 25,300 listed on Google
sealy dog beds - 19 searches - 120 listed on Google
iron dog beds - 28 searches - 791 listed on Google
water proof dog beds - 13 searches - 165 listed on Google
camouflage dog beds - 5 searches - 29 listed on Google
pink dog beds - 11 searches - 147 on Google
igloo style dog beds - 6 searches - 71 on Google
vinyl dog beds - 18 searches - 484 on Google
dog pillow beds - 14 searches - 504 on Google
toile dog beds - 14 searches - 520 on Google
rover dog beds - 13 searches - 395 on Google
burberry dog beds - 14 searches - 433 on Google
nfl dog beds - 9 searches - 228 on Google
rag dog beds - 4 searches - 74 on Google
extra large dog beds - 13 searches - 791 on Google
nesting dog beds - 13 searches - 803 on Google
wicker dog beds - 22 searches - 730 on Google
beasley dog beds - 6 searches - 162 on Google
caddis dog beds - 10 searches - 458 on Google
unique dog beds - 9 searches - 478 on Google
raised dog beds - 11 searches - 964 on Google
large dog beds - 45 searches - 32,300 on Google
wood dog beds - 7 searches - 855 on Google
orthopedic dog beds - 27 searches - 24,600 on Google
fleece dog beds - 8 searches - 2320 on Google
discount dog beds - 12 searches - 15,3000 on Google
memory foam dog beds - 27 searches - 17,6000 on Google
outdoor dog beds - 26 searches - 19,100 on Google
foam dog beds - 27 searches - 19,3000 on Google
chew proof dog beds - 11 searches - 4,460 on Google
Ok...I'll stop there...as that's 469 searches a day.
Are you seeing where I'm going with this? The thing to remember about Pay Per Click is that it's about QUALITY, not QUANTITY.