When you're trying to make advertising work, there's a simple calculation you can use to get a rough idea on how much you can spend per click.
Multiply your purchase conversion rate by the first order's average value (AOV) and your margin.
For example,
3% conversion rate X $50 AOV X 20% margin = $0.30 cost per click
The result is how much you could spend per click in order to ensure that you'll make enough sales to cover the costs on the first order.
By using the first order's AOV you're also ensuring that you'll make back the costs right away. If you used your overall AOV or customer lifetime value, then you'd have to wait for that customer to go through their entire lifecycle of purchases.
(That's why some advertising formulas that use lifetime value will use a percentage, they're accounting for how long it takes to earn the full value)
Using a simple formula like this should let you quickly see if advertising could work for you or if you'd be better off focusing on a different marketing channel.
If you don't know your first order AOV yet, you can try coerce the data out of Shopify's reports (though you might need a higher-end Shopify plan).
Or you can install Repeat Customer Insights and check its Customer Purchase Latency report. It includes the AOV of your first orders (and every order after that).
Eric Davis
Learn what your customers are actually doing instead of just guessing
One of the best ways to build a sustainable business starts by getting your customers to come back. Mastering that simple process can be difficult, but builds a lifelong business.
Repeat Customer Insights can help you understand your customer's behavior. With its collection of behavior reports, you can see what they're actually doing instead of guessing and having your efforts fall flat.