What Is an Average?
But what exactly is an average, and why is it so useful? In short, understanding averages can help you make smarter decisions.
An average is a single number that gives you insight on a set of numbers. It provides a quick way to understand the general trend of data without analyzing each individual number. Funnily enough, the word average is not a formal mathematical term.
When people talk about "the average," they are usually referring to what math calls the "Arithmetic Mean", but there are actually different types of averages used for different purposes. Let's talk about them, but first:
How to Calculate the Average (a.k.a. Arithmetic Mean)?
The most common way to calculate an average is by using the arithmetic mean formula:
Average = (Sum of all values) / (Total number of values)How about an example? Suppose you run a small business and track your monthly sales revenue for the past five months: 10,000, 12,500, 9,800, 11,200, and 13,000.
- Add them up: 10,000 + 12,500 + 9,800 + 11,200 + 13,000 = 56,500
- Divide by the number of months: 56,500 ÷ 5 = 11,300
And there you go: The average monthly revenue is 11,300.
Types of Averages and When to Use Them
Different situations call for different types of averages. Let's talk about the 2 most common ones.
Median
The median is the middle number in an ordered set. This can take two shapes depending on whether you have an even or an odd count. If you have an even number of values, the median is the average (arithmetic mean) of the two middle numbers. The median is particularly useful when you need to eliminate the influence of very big values or very small values.
Example: Let's say you own a restaurant and track daily customer spending, the median can show typical spending patterns while ignoring unusually high or low purchases.
Mode
The mode is the number that appears most often. It’s helpful when analyzing trends.
Example: If you sell clothing and see that a specific shoe size is the most frequently purchased, the mode can help you restock that particular size.
Why Are Averages Important?
Averages simplify data and help make informed decisions in your professional or in your everyday life. In your personal life; for example, you can use averages to calculate average commute time, fuel efficiency, or your budget.
Common Mistakes When Using Averages
1. Misinterpreting the Average
The average doesn’t always reflect the full story. If a business has five employees earning 30,000 and one CEO earning 300,000, the average salary might seem high, but it’s not representative of most employees.
2. Ignoring Outliers
If your data has very high or very low values, the mean might not be the best measure. In such cases, using the median could be more accurate.
3. Confusing Mean, Median, and Mode
Each type of average serves a different purpose. Choosing the right one depends on the type of data you are analyzing.
Final Thoughts
Averages are more than just numbers—they help businesses, professionals, and individuals make sense of data quickly. If you understand how to use averages, you can take better, data-driven decisions.
Also, next time you need to analyze data, think beyond just the "average" (arithmetic mean). Consider the median or the mode to get a more insightful picture.