Seeing your site at the top of the search results for your target phrase as a beautiful thing; however, if it doesn't drive quality, converting traffic to your site, it's not doing you any good. The goal of any true optimization campaign is not only to get a site and it's pages to the top of the results, but to get them to the top of the results for the phrases that matter.
In order to know the most important phrases to target it's necessary to do some keyword research before ever beginning the promotion of your site. I can tell you from first hand experience, I've seen some absolutely beautiful sites, with great content and great products fail miserably because they targeted the wrong phrases.
There are LOT of different ways to research the best keywords to choose. Below I've outlined a few of the top that should help you get going.
1) Brainstorming
The obvious place to start. Think of all the ways you know of that your potential visitors could try and find your product or service, but don't stop there. Once you've run out of terms, ask friends and family how they would try and find your product or service when searching online.
You may well be surprised at how others will search for you. Remember, in general, your potential visitors are not experts in your industry and may well use vastly different language to describe your product or service.
Make a list of all the phrases you come up with.
2) Competitors
This is always a good place to continue your research. After all, if there business has been running for a while, it is likely they have done a good bit of the research you need to do, so use their success to your advantage! Go through their site and look at the keywords and phrases they are targeting. Make notes of any phrases that can be used to describe your product or service that you haven't yet come up with and add them to your list.
3) Keyword Research Sites
These are great. You can type in a phrase and get back phrases that incorporate that phrase, associated phrases, etc. You'll also generally get a good bit of additional information such as predicted number of searches in a given time frame, etc. There are a number of research sites these days…some free and some paid.
I've listed a few below.
Wordtracker - Paid but has a free trial
Keyword Discover - Paid
Good Keywords - Free downloadable program
Google Keyword Tool - Free
Always remember that no keyword research tool is perfect. Some data will be skewed due to numerous reasons, but they are ideal for finding additional keywords and phrases you may have never thought of.
4) Old School Research
For this break out the dictionary and the thesaurus. You do have those don't' you? Well, luckily if not, you can use some online ones as well. 
You'd be surprised at the great ideas you can get just by using a thesaurus.
By the time you've gone through all 4 steps above, you should have a pretty exhaustive list of phrases that can be used to find your product or service. If you have multiple products and services, you will want to repeat the above steps for each product/service you offer.
Once you've got your list you want to focus your pages on the phrases you've generated. I try and hit about 2-3 phrases per page. In doing this you'll keep the focus of each page tight and have the best chance of ranking for that pages target phrase.
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