To understand weighted average first we need to understand what is average? In calculating a simple average, or arithmetic mean, all numbers are treated equally and assigned equal weight. But a weighted average assigns weights that determine in advance the relative importance of each data point i.e. there may be some data points which are more significant than others or occur more frequently.
Average is sum of all the values and divided by number of values. In contrast, the weighted average is values multiplied by the weight and divide by sum of weight.
In below example we have different items and their respective price, quantity sold and sales value which is their quantity sold* price.
Here, Average - (5+4+1+2+3)/5 = 3
Weighted Average - (5*5) + (4*7) + (1*8 )+ (2*6) + (3*4) /30 = 2.83
In above example, we can think of average price of every item is 3 but in reality there is weight associated with each item which is quantity sold in this case. Therefore the weighted average is more accurate here and we can say weighted average of every item is 2.83.
Let's try to visualize it in Tableau- I am using Superstore data and we will try to visualize difference in average and weighted average of sales for subcategory.
To get the simple average you need to right click on the measure and choose "Average" .
To get the weighted average we have to define a calculated field with the formula as below -
Below screenshot helps to figure out how average is different from weighted average.
We can conclude here, simple and weighted average are acceptable to calculate the average of a set of values. Key differentiator between them is in their usage in various applications. Simple Average usage is more in mathematical equation whereas Weighted Average usage is widely used in Finance Activities.
I hope this blog helps you to understand the difference between Average and Weighted Average.