Formula
Lerner Index formula
Lerner Index = (price - marginal cost) / priceUse the same unit, currency, product mix, and time window for price and marginal cost before comparing results.
Lerner Index Calculator
Use this Lerner Index calculator to screen SKU pricing power before reviewing elasticity, competitor pricing, contracts, or price-change scenarios.
Planning estimate
Live calculator
Lerner Index calculator
Lerner Index0.25
$10.00 markup divided by $40.00 price.
Pricing powerModerate pricing power
25.0% price-cost margin before demand-risk adjustment.
Risk-adjusted index0.213
15% demand-risk haircut applied to the raw index.
Pricing power summary
Keep price and marginal cost on the same unit, currency, time window, and product mix before comparing pricing power across SKUs.
| Measure | Value |
|---|---|
| Price | $40.00 |
| Marginal cost | $30.00 |
| Markup amount | $10.00 |
| Markup on cost | 33.3% |
| Target index | 0.25 |
| Gap vs target | 0 |
Planning note
Lerner Index is a directional pricing-power screen, not a demand model. Pair it with elasticity, competitor pricing, contract constraints, and customer-impact review before changing prices.
Planning comparison only. Check estimates, omitted costs, timing, and constraints before making an operating decision.
How to use
Steps
- Enter the price per unit for the product or SKU you are reviewing.
- Enter marginal cost on the same unit and currency basis.
- Set a target index if you want to compare the result against a planning threshold.
- Adjust demand risk to see how much pricing power remains after a conservative haircut.
- Review the index with elasticity, competition, and contract constraints before changing price.
Example
Sample calculation
Price$40.00
Marginal cost$30.00
Lerner Index0.250
Pricing powerModerate pricing power
Calculator use
Best for
- Pricing, runway, cash flow, or work assumptions before an operating decision.
- Base, conservative, and optimistic cases with visible inputs.
Before relying on it
Check first
- Use the same unit, currency, product mix, and time window for price and marginal cost before comparing results.
- Mixing scenarios, units, or time periods in one comparison.
- Leaving out material costs, capacity limits, uncertainty, or dependencies.
Details
What to know before using the result
Index meaningPrice-cost markup as a share of price
Higher values imply more room between price and marginal cost, but do not prove demand can absorb a price increase.
Input qualityMarginal cost discipline
Using average cost, fully loaded cost, or an incomplete variable-cost estimate can change the interpretation.
Decision usePricing power screen
Pair with elasticity, competitor pricing, customer impact, and contract limits before setting price.
Source notes
References used for this calculator
Benchmarks
How to read the result
Thin: Below 0.10.
Little price-cost room; validate cost accuracy before drawing conclusions.
Moderate: 0.10 to 0.30.
Meaningful markup signal, but still dependent on demand and competitive context.
Strong: Above 0.30.
Potential pricing-power signal that should be reviewed against elasticity and market constraints.
Calculator accuracy
Methodology and assumptions
Formula, inputs, limitations and review record
Formula
Lerner Index = (price - marginal cost) / price
Inputs used
Price per unit, Marginal cost, Target index, Demand risk
Limitations
Business results depend on contracts, accounting treatment, taxes, payment timing, refunds, collections, and operating assumptions.
Review record
Catalog QA baseline on June 6, 2026. This date marks the catalog-wide automated and editorial QA baseline, not a tool-specific expert review.
Cite this page
Toolkit Shelf. Lerner Index Calculator. https://toolkitshelf.com/tools/lerner-index-calculator
FAQ
Common questions
Is Lerner Index the same as gross margin?
It uses the same price denominator as gross margin, but the cost input should be marginal cost rather than accounting cost or fully loaded cost.
Can this tell me whether to raise prices?
No. It screens price-cost room. Use elasticity, competitor behavior, customer impact, and contract limits before deciding on a price change.
What if marginal cost is above price?
The index becomes negative, which signals the product is priced below marginal cost under the current assumptions and needs review.
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