Make your first list of keywords
To start with, make a list of every word or phrase you can think of that people might use to find what your site offers. Ask anyone you can to give you ideas — you never guess what alternatives your colleagues can offer.
Just like my boss often searches for search engine marketing — and I prefer website promotion, any of your colleagues or friends may have a different idea of how your product can be found.
And, use an Excel spreadsheet to put each keyword as a separate record in it, as you'll need to do some calculations later.
Think of some keyphrases
After you have a list of single words, think of keyphrases. Try to combine the words you have on your list, or add other relevant words that better describe your product or service. Again, ask your friends and colleagues for input and try to find people that are within your site's target audience to get an idea of how they would search.
Also, take into consideration variations in terminology as determined by one's age, profession, what part of the world they are from, and so on. Remember that there are often several ways of saying the same thing.
The simple example is headphones. My dad rather calls them headsets. And Mike often says earphones.
And, first and foremost, my advice here is: use your imagination. Answers can come from most unexpected places. The fewer things people know about SEO, the better keyword ideas come to their minds.
Use the web to get more
Once you have a good starting list of 20-40 words, use search engine databases to refine it and see what people have actually searched for when looking for similar sites. Here're the three most popular resources for doing that:
Free Wordtracker is almost equally useful as the paid one. If you enter your main keyword, Wordtracker lists out suggestions for other popular search terms that contain that particular word or phrase. However, like any free tool, it has a few downsides. For instance, it won't store your keywords for future use, it only gives you 100 suggestions and lets you get suggestions for just one word at a time.
Google's Keyword Tool Quite a useful thing. Select to generate keyword ideas with Descriptive Words or Phrases. Enter a keyword for the start and go ahead to get a nice list of keywords.
Keyword Discovery This search term suggestion tool can also be quite helpful, as long as it's free. The drawback is again, that you can only ask for suggestions for one keyword at a time, and won't be able to check more than 100 keywords daily. Besides, like the rest of free tools, it won't store your keywords for the future.
Spy on competitors
Let us be honest: each SEO is a spy. As any marketers, we always keep an eye on our competitors to get more ideas. So don't miss a chance to borrow some nice keywords from your peers.
One of the ways is to use the free Google Keyword Tool again. Choose some keyword phrase you'd like to use and enter it in Google's search field. That's a way to find the top websites you would have to compete with.
Put human mistakes at your service
By the way, it's a good thing to consider misspelled keywords. Your SEO in Practice guide is the rare SEO book that will mention it, but that's a great way to get new ideas without even using any special keyword tool.
Think of misspellings that may occur for the keywords you want to target. People do make mistakes when they type in search terms. And this does happen more often than you might think, believe me.
Want to check it yourself? Type gaurantee in Google. I've just checked and found 1,540 results. Those are the smart guys! Or even better, try sports equiptment. Brings 42,000 results! So as you see, people do misspel words, use them on their sites, optimize for them and get a good portion of traffic.
So keep misspelled keywords, since if you misspell them, others might do the same and find exactly your page. And, for the time being, just put misspellings on your list.
Everyone loves the local guy!
It's sometimes very useful to localize your keywords. For instance, a guy from Bronx won't search for simply car wash. He will type in car wash New York, or even more likely car wash Bronx. So if you optimize for a localized term, you'll get more visitors who want to get what you offer exactly where you offer.
So if your business location matters, what you have to do now is, create keyword combinations with local names.
Tiny variations make a great matter
Most search engines make a distinction between singular and plural forms, as well as stemmed variations — gender forms, or "-ing", "-ed" forms.
So don't forget it may be very useful for you to target different forms of the same words as well. It'll bring some portion of searchers to your site.
Maybe not that many of them, but as long as you make a sale, it's worth the effort.
Like, if your main term is birthday cards, it's wise to consider birthday card as well. Just type these terms in Google! You get 4,080,000 results for birthday cards — and 5,270,000 for birthday card. Now, if you optimize for both terms, you're the smartest!