Break Even Analysis refers to the calculation to determine how much product a company must sell in order to break even on that product. It is an effective analysis to measure the impact of different marketing decisions. It can focus on the product, or incremental changes to the product to determine the potential outcomes of marketing tactics. The formula for a break even analysis is:

Break even point ($) = (Total Fixed Costs + Total Variable Costs).
Total Variable Costs = Variable cost per unit x units sold
Unit contribution (contribution margin) = Price per unit - Variable cost per unit.

When looking at making a change to the marketing program, one can calculate the incremental break even volume, to determine the merits of the change. This determines the required volume needed such that there is no effect to the company due to the change.

If making changes to fixed costs (changing advertising expenditure etc.):
Incremental break even volume = change in expenditure / unit contribution.
Thus if a company increased its advertising expenditure by $1 million, and its unit contribution for the specific product is $20, then the company would need to sell an additional 50,000 units to break even on the decision.

If making changes to the unit contribution (change in price, or variable costs):
Incremental break even volume = (Old Unit Volume x (Old Unit Contribution - New Unit Contribution)) / New Unit Contribution
Thus if a company increased its price from $15 to $20, and had variable costs of $10, it is increasing its unit contribution from $5 to $10, assume also an old unit volume of 1 million. It could therefore reduce its volume by 500,000 to break even on the decision.

When making changes to a specific product, cannibalization of other products may occur. To calculate the effect of cannibalization, the Break Even Cannibalization rate for a change in a product is:
New Product Unit Contribution / Old Product Unit Contribution.
New Product is the planned addition to a product line (or change to a product within a product line), Old Product is the product that loses sales to the new product (or the product line that loses sales). The cannibalization rate refers to the percentage of new product that would have gone to the old product, this must be lower than the break even cannibalization rate in order for the change to be profitable.