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Thread: How to calculate Weighted Average for price increase/decrease

  1. #1
    Moe is offline
    May 2008

    How to calculate Weighted Average for price increase/decrease

    I have been asked recently by my manager to provide some analysis to the average price increase/decrease for our products. He mentioned that I need to use weighted average.

    I am comparing the percentage of a price increase/decrease for 5 products during Jan 2007 & Jan 2008. My aim is to find the weighted average for the % of the price increase/decrease.
    I have been told that weighted average is calculated using a different method and I am not sure how to do that.
    I hope you can explain to me how weighted average is cacluated. Thank you
    I have simply used the following method : Sum(13%,12.5%,-18.18%,0%,-3.85%)/5 = 0.69% (Thi is the % increase/decrease of the price when comparing 2007 with 2008 prices)

    Please refer to the attached file for the example. Also note that my real life file consist of about 1000 products.
    Attached Files Attached Files
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  2. #2
    MHF Contributor
    Aug 2007
    Your sum is very bad. Never do that again.

    Your percentages are calculated with two pieces, right?

    Something / (Something Else)

    It is likely these "Something Else"s are the ones you want.
    It is also possble you want the "Something"s.
    It is also possible you need other stuff entirely.

    In any case, here's a simple example.

    1.00 ==> 1.05 ==> 1.05/1.00 = +5%
    2.00 ==> 2.20 ==> 2.20/2.00 = +10%

    Weighted Average (Something Else Version)

    ((+5%)*1.00 + (+10%)*2.00)/(1.00+2.00) = +8.3333%

    Weighted Average (Something Version)

    ((+5%)*1.05 + (+10%)*2.20)/(1.05+2.20) = +8.3846%

    Weighted Average (Other Stuff Entirely Version)

    In this case, we need a little additional information.
    Suppose we sell 1000 of product 1 and 670 of product 2

    This may be a way to do it - using counts.
    ((+5%)*1000 + (+10%)*670)/(1000+670) = +7.005988%

    This may be a way to do it - using total original revenue before price changes.
    ((+5%)*1000(1.00) + (+10%)*670(2.00))/(1000(1.00)+670(2.00)) = +7.863248%

    See if you can think up some other ways. Present everything that makes sense to your employer and see which are preferred. There may be more than one or yet another may be suggested.
    Last edited by TKHunny; May 14th 2008 at 06:14 AM. Reason: Spacing
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