An average is the best way to get an insight into the data. But sometimes average gives you a biased value. In those [every time] situations the best way is to calculate the weighted average.
And I have found the best way is to use a formula by combining SUMPRODUCT and SUM functions.
This method is simple and easy to apply. So today, in this post, I’d like to share with you how to calculate a weighted average in Excel using SUMPRODUCT and SUM.
Difference between Normal and Weighted Average
In the below example, we have 1658 as a normal average and 1445 as a weighted average. Let me clarify this difference with two points.
- First: If you multiply 1658 (average) by 68 (quantity) you will get 112742 which does not equal the total amount. But if you multiply 1445 (weighted average) by 68 (quantity) you will get 98289 which equals the total amount.
- Second: Product-1 has the lowest price and highest quantity whereas Product-4 has the highest price and lowest quantity.
While calculating the normal average you are not considering the quantity and if there is a change in quantity there will be no effect on the average price. And, in the weighted average, you can take quantity as a weight.
Step to Calculate Weighted Average in Excel
To calculate the weighted average, we are using the same data table which I have shown you in the above example.
Now follow these two simple steps.
- In the C7 cell, enter following formula: =SUMPRODUCT(B2:B6,C2:C6)/SUM(B2:B6).
- Click OK.
Now, you have 1445 as a weighted average of price and product. As I said, SUMPRODUCT is an effortless way to calculate the weighted average or weighted mean in Excel. The best part about SUMPRODUCT is it can multiply and sum an array in a single cell.
How Does this Work
We need to break down this formula to understand it.
First, SUMPRODUCT will calculate the product of price and quantity for all the products and return the sum of all those. After that, some functions will give you the sum of the quantity. And in the end, you will get the weighted average by dividing values from both functions.
Check this out: SUMPRODUCTIF
Calculate Moving Weighted Average
Let’s come one step further. Let’s move to the data analysis part. By using the same formula, you can calculate the weighted moving average as well.
Here are the steps:
- Enter the formula below in cell D4 and drag it down to the end. =SUMPRODUCT(B2:B4,C2:C4)/SUM(C2:C4)
- Once you drag this formula it will calculate the moving average on the basis of 3 months for each month.
How Does this Work
If you check the above snapshot in cell D4 you have the moving average for Jan, Feb, and Mar. And, in cell D5 you have the moving average for Feb, Mar, and Apr.
So, the thing is every time you move to a new month you will get the moving average including the current month and the last two months. You just need to make your cell references are relative when you drag down your formula.