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A weighted average accounts for the relative importance of each value in a dataset. Unlike a simple average, it weights each value by its proportion — so a large segment contributes more to the result than a small one.
Weighted average formula
Weighted Average = Σ(value × weight) / Σ(weights)
Common business applications
| Use case | Value | Weight |
|---|---|---|
| Portfolio return | Asset return % | Asset value $ |
| Blended cost of capital | Cost % | Capital amount $ |
| Weighted NPS (Net Promoter Score) | NPS per cohort | Cohort size |
| COGS by product | Unit cost | Units sold |
| Market share-weighted price | Price $ | Market share % |
Weighted average vs. simple average
If you sell 100 units at $10 and 10 units at $50, the simple average price is ($10 + $50) / 2 = $30. But the weighted average (by units) is (100×$10 + 10×$50) / 110 = $13.64 — a far more accurate representation of your actual revenue per unit.