I'm trying to create weighted averages for 2 different variables, but am struggling with how to do the right calculation. Let's say I have the following, by Market Size / Penetration % / Market Share %, and then for each region you multiple the variables ($ = Market Size * Penetration * Market Share):
Region A: $\$900,000 / 75\% / 5\%$
Region B: $\$200,000 / 75\% / 0\%$
Region C: $\$5,500,000 / 0\% / 0\%$
Region D: $\$28,400,000 / 0\% / 0\%$
This leads to a sum of $\$33,750$ as only Region A will be a non-$0$ number.
Obviously total market size is $\$35,000,000$, but how do I calculate the overall penetration and market share %?
Originally I was going to calculate average penetration by multiplying each region's market size by its penetration, summing those values, and then dividing by the total market size (and then doing the same for market share).
This gave me a penetration of $2.4\%$ and a market share of $0.1\%$, but then when I multiply the total market size of $2.4\%$ and $0.1\%$, I don't get $\$33,750$.
I get a total of $\$1,061$ instead.
Any help would be much appreciated!
Best Answer
The penetration% and market share% are not independent. The regions with higher penetration% (A and B) have relatively higher market share% than the other regions.
Therefore, you can't simplify multiply the overall penetration% with the overall market share% to get the total dollar amount.