What is a Pareto Chart Explain With Example, Create & History

A Pareto chart is a basic quality tool that helps you identify the most frequent defects, complaints, or any other factor you can count and categorize. A Pareto chart is just a bar chart that arranges the bars (counts) from largest to smallest, from left to right in which the claim is made that 80% of the effects result from 20% of the causes.

How to Create Pareto Chart?

There are dozens of tools for data visualization that helps you to compare your data. These range from simple to complex, from intuitive to obtuse. Creating Pareto chart in can be a tough task. Rather than offering hundreds of connectors that pull limited datasets you can take the advantage of ChartExpo .Plotting a Pareto chart in ChartExpo is easy because it has a built-in Pareto chart type and you can easily create Pareto chart within clicks. There is a step by step guide on how to create Pareto chart in Google Sheets?

Pareto Chart Example:

Pareto Chart is based on the classic 80/20 rule. That is, in many cases 20% of the problems cause 80% of the occurrences. For example, let’s say you have a problem with a product failure, based on a number of causes. Through observation and collecting metrics, you determine there are eight causes. Rather than attacking the causes randomly, a Pareto Chart might show that 80% of the problems are caused by the top three causes. This gives you information to know which causes to solve first.

Pareto chart history

Pareto Analysis uses the Pareto Principle  also known as the “80/20 Rule” – which was devised by Italian economist, Vilfredo Pareto, in his 1896 book, “Cours d’économie politique.” The Pareto Principle states that 80 percent of a project’s benefit comes from 20 percent of the work and it is drawn using a chart called Pareto Chart.

Feeling stumped with your data analysis in pay-per-click (PPC) advertising?

Perhaps you’re making a common mistake by looking at much more than you need. When it comes to getting the greatest return on investment (ROI) from data analysis in PPC advertising, you can save a lot of time and money by just focusing on the areas that are really producing results or not.

More often than not, this boils down to a minority of causes, which brings us to the Pareto Principle.

The theory that 80% of the results come from 20% of the sources has been widely applied to marketing and business for many years.

PPCexpo is now making life easier for PPC managers and data analysts by simplifying data analysis with their Pareto Chart.

Let’s see how it can change your fortunes in paid advertising.

Key Aspects of the Pareto Chart

Before we explain just how you can use the chart, there are some core components in the chart to get familiar with.

Top Horizontal Axis

The blue, horizontal bar at the top of the chart measures the “impressions” for each keyword. This will vary depending on the data used, and you can use any attributed metric (e.g. clicks, cost, wasted spend, etc.) from your Google Ads account.

Each horizontal bar in the chart represents the contribution to the total impressions for that given keyword.

The bars are placed on the chart in ranking order, from highest to lowest. So, the bar at the top has the highest contribution to the total impressions.

Bottom Horizontal Axis

At the bottom of the chart, there is an orange, horizontal bar that denotes the percentage values of the cumulative line.

Cumulative Line

The cumulative line in the Pareto Chart runs diagonally downwards through the chart. This is used to add the percentage values of each bar, starting with the top bar.

This enables us to see which values contribute the most impressions, and also how much of the total contribution it accounts for along the way.

Further to the aspects above, PPCexpo has some added unique inventions that differ from the conventional Pareto Chart.

80/20 Rule Indication

The gray line that runs vertically and horizontally intersects at the 80% marker of the bottom axis. This is an indicator that separates the most significant keywords (above the horizontal line) in the campaign from the least significant keywords (below the horizontal line).

Keywords above the 80% line are the ones you should focus on to boost ROI, whereas the least significant words may not be worth your time.

Measuring Previous Period Progress

PPCexpo has introduced a horizontal gray bar to measure previous period data in a Pareto Chart. This allows you to compare the most recent period data with previous period data, which helps to investigate the state of significant contributions in the previous period.

How to Interpret a Pareto Chart

The purpose of the Pareto Chart is to help people distinguish the “vital few from the trivial many.”

So, for PPC managers, the ideal chart would only have just a few bars, which account for around 80% of your impressions, clicks, or conversions.

By checking the cumulative line, you can see if the strategy is performing well. If it is a steep line, with a high arch, then it shows the first few areas are contributing to a high proportion of the total.

Conversely, an almost diagonal line tells you that each successive bar is making a similar contribution. This isn’t much use, and the Pareto Chart can’t help you a lot in such a scenario.

Often, this can happen if we separate large problems into smaller problem areas. We essentially flatten the Pareto Chart by doing this, and it is less effective at helping us determine the key areas.

When to use Pareto Chart

Pareto Charts are most effective when you are facing conflicting problems. In PPC advertising, you may have a lot of competing keywords, making it hard to decide on how best to allocate your marketing budget.

By using the chart, you can discover the ROI of your keywords, correlating keyword bids and costs with the results they generate.

When doing this, you can only use attributed data.

What is Attributed Data?

This is also known as ‘count data’, as it refers to the additive metrics in Google Ads that you can count or add. So, in Google Ads, you can use the following metrics in your Pareto Charts:

• Impressions
• Clicks
• Cost
• Conversion
• Conversion Value
• Wasted Spend
• Conversion Spend

The Pareto Chart Helps Measure Performance

As you can see, there isn’t a lot to learn when it comes to understanding how a Pareto Chart works. However, once you know how to interpret the data, the Pareto Chart is a useful tool for pay-per-click advertising.

These charts from PPCexpo have some unique features, such as the 80/20 rule indication line. Digital marketing managers can use our charts to improve their data analysis, easily measuring their ad campaign performance, and gleaning valuable insights on high-performing keywords.

Over time, this will help you get more effective with your advertising spending, and soon you’ll be able to reap the rewards of a high-ROI campaign.