I have my own personal set of rules for this. If something happens which really captures my attention and I have any doubt about getting the aircraft on the ground safely, or if it is a medical emergency, then it is a MAYDAY. Any aircraft problem which causes me to deviate from my planned flight profile, then it is a PAN.
Examples in the last couple of years:
Oily blue smoke in cockpit causing streaming eyes and a hacking cough (all engine indications normal) - MAYDAY
One fuel gauge dropped from 3/4 to 1/4 over about 30 secs - PAN and diversion.
Always start with a high bid in my view. Downgrade it if and when you are content that the situation is resolved.