Pareto Chart: How to make a Pareto Chart (Analysis & Examples)

It’s no news that data visualization is one of the most effective ways of interpreting complex information. And if you’re looking for a way of representing individual problems with the cumulative total of the whole, then the Pareto Chart is your best shot.

What is a Pareto Chart?

The Pareto Chart is a mix of a bar graph and a line chart. It’s used for demonstrating the 80-20 principle. Individual problems (or data points) are represented using bars, and these bars are arranged in descending order — from the largest to the smallest. A curved line is used to represent the cumulative total of the data set.

Furthermore, there is an 80% cut-off line that shows where the 80/20 principle applies. The 80/20 rule pretty much argues that 80% of the results are determined by 20% of the effort.

Simply put, the Pareto Chart is a visualization tool that helps you pinpoint the most frequent complaint, defects, or other issues that can be easily categorized or counted. Also, the chart follows the Pareto principle — 80% of effects are as a result of 20% of action or causes.

Key points about a Pareto Chart

• You would get the most out of a Pareto Chart if you work with much more observations across all categories. Working with small numbers of data are often misleading because of the random changes that will likely occur. 30 will be the good number of observations to start with.
• With category classification, you get to easily direct your attention to the improvement project.
• When focusing on improvement efforts, you should not only identify categories with 80% of the problems.
• The Pareto Chart does not explain the kind of variation that is observed. If you want to distinguish special cause (non-random) and common cause (random) variation, you’ve got to opt for the control charts or run charts.

Now you’ve got a good grasp of what the Pareto Chart is, here are easy ways of reading the chart.

What is the characteristics of Pareto analysis?

• In case of Pareto Column Chart, the Y-axis contains the number of events. It is reverse in case of Pareto Bar Chart.
• In case of Pareto Column Chart, the X-axis contains the area (or categories) of interest. It is reverse in case of Pareto Bar Chart.
• You get to see the cumulative frequency on the right Y-axis. It is reverse in case of Pareto Column Chart.
• The Pareto Chart is a mix of the line and bar graph. The line graph showcases the cumulative percent of events, while the bar graph shows the number of events per category (or area) of interest
• Vital few are categories that contribute up to 80% of the problem, while the remaining categories are termed useful many.

How to read a Pareto Chart?

You’ve got a solid understanding of what the Pareto Chart is, the characteristics, and the key points of the chart. It’s time to take a close look at how to read the Pareto Chart below is the example of horizontal Pareto Chart:

The Pareto Bar Chart above shows the profit generated by various cities in the United States. It’s a robust chart that shows the profit generated both in the current and previous period. From the visual representation above, you can easily pinpoint the cities that generate the most profit both in the current and previous periods.

Los Angeles and Chicago are the two most profit-generating cities in the United States, while Boston remains the least profit-generating city.

To a large extent, the Pareto Chart is an ordered bar chart that has a chain of bars arranged according to their values. Therefore, the top-performing cities are at the top of the chart, while the least performing cities are at the bottom.

Here comes the big question — what’s the difference between the Pareto Chart and a bar chart?

The Pareto Chart comes with a cumulative percentage line — the line that cascades down the right side of your diagram. You won’t see that in a standard bar chart.

Moving on, here is an easy way of reading the Pareto Chart.

With the cumulative percentage line, it could be somewhat difficult to read the Pareto Chart. And if you’re a newbie in the industry, you may have some trouble reading the chart.

First things first, you’ve got to understand what’s represented on the chart — and you can start by having a good grasp of all three axes displayed on the chart.

1. Y-axis shows the various cities in the United State
2. The top X-axis shows profit generated (from $0 to $575)
3. Z-axis represents the cumulative percentage (from 0% to 100%)

Each horizontal bar represents a city. The length of the bar shows the amount of profit generated by the city. Los Angeles and Chicago generated the most profit both in the current and previous periods. For instance, Los Angeles and Chicago generated 26% of the total profits across all cities.

The cumulative percentage shows you how each city is performing in comparison to the rest. You would easily see that Los Angeles, Chicago, New York, Phoenix, Philadelphia, San Francisco, and Miami generated a staggering 80% of the profits in the United States. These seven cities combined for the most profit in the country.

What’s more, all seven cities are above the gray line — and the gray line signals the top 20% cities in the country. It’s the line that shows the vital few cities responsible for the most profit in the country.

These are the cities the country will most likely focus on!

Cities that fall below the gray line are the useful many — and these should be the secondary focus of the country.

How to make a Pareto Chart (Google Sheets & Excel)?

Creating the Pareto Chart is somewhat easy — you can do that using Google Sheets or Microsoft Excel.  You can click to install this library in any of your favorite tool.

Once it is installed, to create the chart using Google Sheets, you’ve got to navigate to Google Sheets on your computer and click on the “Extensions” option in top menu bar. From the list displayed on the drop-down menu, choose ChartExpo.

After clicking on the ChartExpo icon, the add-on will load on the right side of your computer screen. Next, click the Create New Chart option.

If you click on the Create New Chart option, you would see various kinds of charts displayed on the dashboard. From the chart types, choose the Pareto bar chart.

The next step is to choose your preferred sheet, dimensions, and metrics. After choosing these items, click on the create chart icon.

When you click on the create chart icon and the change few properties, you would get a chart similar to the one below.

The chart above provides insights into your campaign performance. This way, you get to identify the campaign(s) that generates 80% of your conversions. Moving on, the chart helps you know how to optimize campaigns that are not performing well.

• You can also create a Pareto Chart with Microsoft Excel.
• You can find guide to install ChartExpo in Excel.

Once it is installed in Excel, now, open your Excel desktop app and navigate to the My Apps or My Add-ins icon and click on it.

You would see ChartExpo — click on it to get the list of chart types displayed on your screen. From the list of Chart types, choose Pareto Bar Chart.

List of charts will appear on the window.

You will find a new screen then you can click n Add Sample Chart+Data.

Once click on this button you will see the following visualization with data.

Let’s have a closer look on this visualization.

You can change the data with your own data and draw the new visualization.

What is the purpose of a Pareto Chart

The Pareto Chart serves one primary purpose — it highlights the most vital piece of a data set. That is the part that contributes the most to the whole data set. If you use the Pareto Diagram for quality control, it would help you pinpoint the defect(s) that when handled, could lead to the most improvement.

What are the types of Pareto Chart

There are various Pareto Chart types, but if you’re using the ChartExpo visualization tool, you would most likely come across the Pareto Bar Chart and the Pareto Column Chart.

You can find both chart if you type to find Pareto Chart in ChartExpo library.

Pareto Bar Chart shows bar on X-axis

Pareto Bar Chart

Pareto Column Chart shows bars on Y-axis.

Pareto Column Chart

When to use a Pareto Chart (what are its main uses?)

If you’re looking for a reliable way of maneuvering conflicting problems, then the Pareto Chart is your best shot. Let’s say you’re in the PPC advertising industry, handling lots of competing keywords may be a difficult task, especially if you’re looking for how to run a campaign on a tight marketing budget.

However, if you use the chart, you can easily pinpoint keywords and the ROI it may likely generate. This way, you get to correlate cost and keyword bids with the potential result it would likely generate.

To do this, you’ve got to use attributed data. But what’s attributed data?

Attributed data — what is it?

Attributed data (count data) are additive metrics in Google Ads that help you add or count. If you would be running some Google Ads, here are some metrics you’ve got to consider in your Pareto Chart.

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

Pareto Chart Helps in Measuring Performance

When it comes to pay-per-click advertising, the Pareto Diagram helps you to identify areas to focus on. Yes, since 80% of the results are generated by 20% of efforts, you’re better off focusing on areas that yield the most results.

The Charts created using ChartExpo come with some unique features like the 80/20 gray line. As a digital marketing manager, you can use the charts to boost your data analysis and measure your ad campaign performance. It’s also a reliable way of gaining insight into top-performing keywords. This way, you get to be more prudent with your advertising spending and also reap your rewards at the right time.

But does the Pareto Chart only apply to digital marketing? No, here are other real-life examples of the Pareto Chart.

• 20% of workers do 80% of the work
• 20% of utensils are used for 80% of cooking
• 20% of clothes are worn 80% of the time
• 20% of transporters cause 80% of accidents
• 80% of company revenue comes from 20% of the company’s product
• 20% of criminals cause 80% of the crimes.

When not to use a Pareto Chart?

Pareto Chart is only used to observe qualitative data — it rarely shows the frequency of measurement. Also, Pareto Charts cannot calculate the data average of any data set. The chart cannot be used for calculating mean, standard deviation, and other statistical data. The statistical and quantitative data gotten from these calculations are used for testing the mathematical values of your data set.

However, qualitative statistics pretty much helps you to know if the process can stay within some specification limit.

Here’s the thing, a Pareto Chart helps you to identify the greatest problem, but it does not show the depth of the problem or the magnitude of changes that can overturn the situation.

What is the cumulative percentage in the Pareto Chart?

The cumulative percentage in the Pareto Chart shows the percentage of the defect that can be removed if you want to solve the most important defect types. It also shows what percent contributes the most to the overall data set.

Mathematically, the cumulative percent is obtained by dividing your cumulative frequency by the total number of observations (n). The result is multiplied by 100. The last value of the cumulative percentage should be 100%.

What are the Advantages and Disadvantages of Pareto Chart

A Pareto Chart is used to pinpoint the data points that generate the most results in a set. Although the Pareto Chart can identify the frequency of occurrence of a data point, frequency doesn’t always translate to the level of significance of such data point — and that’s where the Pareto Chart falls short.

All is not rosy with the Pareto Chart. Here are some benefits and limitations of using the Pareto Chart.

• Benefits of the Pareto Chart

The Pareto Chart helps you to carefully identify the vital few and useful many — and these parameters can pretty much help you know where to concentrate your efforts. This way, you get to focus on the few parameters that generate the most results.

Simply put, the Pareto Chart helps you know where to direct your attention. Regardless of your industry of expertise, the Pareto Chart can play a vital role in your decision-making process.

• Limitations of the Pareto Chart

There are instances where the frequency of occurrence does not translate to significance. For instance, if you’re in the customer service industry, complaints of the paint fading on your product may be a common problem — but it may not necessarily be a significant one.

Resolving the issue may lead to a more significant problem — a defect on your product that leads to some health hazards. If you’re using the Pareto Chart to study how your keywords are performing, you may discover that keywords with the highest clicks may not necessarily be keywords with the highest conversion rates.

How to build a Pareto Chart

As earlier stated, there are several ways of building a Pareto Chart. But if you want to get more done in less time, then building your chart using Microsoft Excel or Google Sheets is probably your best shot. And if you opt for Microsoft Excel or Google Sheets, then you’ve got to install the ChartExpo add-in (or add-on) for these desktop applications.

Next, you get to start building by following the steps outlined in the How to make a Pareto Chart section.

How to do Pareto Analysis?

Here are some things you need to understand before performing a Pareto analysis.

• Pareto Charts 80-20 Rule:

The Pareto Chart obeys the Pareto principle (also known as the 80-20 rule). According to the principle, most results are generated from a minority of causes (or sources). The principle was founded by Vilfredo Pareto, an Italian economist that discovered that a whopping 80% of all lands in the country were owned by a mere 20% of the population.

What’s more, the 80-20 rule is relevant today — 80% of the results are generated by 20% of the effort.

• Pareto Chart Analysis & Examples:

The image above shows the profit generated by various cities in the United States. This way, everyone could see that 80% of the country’s profit was generated by 20% of the cities.

The image above is a Pareto Column Chart that shows the profit generated by all cities in the United States. And just like the Pareto Bar Chart, you can easily see that 80% of the profit was generated by 20% of the cities.

All in all, the Pareto analysis always follows the 80-20 rule.

Moving on, here is how to collect data from a Pareto Chart.

• Collect data from a Pareto Chart

Some easy ways of collecting data from a Pareto Chart include gathering raw data about the problem. It could be achieved by collecting a random sample — and the random sample should adequately represent the entire process.

Also, you’ve got to tally your data and get the sum of all observations in the various categories. After that, you would have to label the vertical and horizontal axes.

Finally, draw the category bars and add cumulative lines and counts.

Why a Pareto Chart is useful compared to other types of graphs?

Other graph types are used for various kinds of quantitative and qualitative measurement. But the Pareto Chart is the only chart that is used to find defects in a data set. It can also be used to identify the 20% effort that generates 80% of the results.

How to draw a Pareto Chart?

Here are easy ways to draw a Pareto Chart in Excel by using ChartExpo library. The steps are to be applied using Excel or the most recent version.

Here is how to create a Pareto Chart in Chart Expo:

• Highlight your data set in sheet
• Open ChartExpo Add-in and find Pareto Chart.
• Select your data set and click on “Create Chart From Selection”
• You can click on Edit button to change the properties according to your need.

Moving on, here is how to create a Pareto Chart in Google Sheets.

• Create your data
• Calculate the cumulative frequencies
• Insert a combo chart
• Add the right Y-axis.

FAQs:

Is a Pareto Chart qualitative or quantitative?

The Pareto Chart offers an easy way of observing qualitative data. It’s a statistical graphical technique that helps rank business process problems in order of their occurrence — typically from the most frequent data point to the least frequent data point.

What differentiates a Pareto Chart from a bar graph?

The primary difference between a bar graph and a Pareto Chart is in its column ordering. Also, the bar graph does not come with a cumulative percentage line.

What is the difference between a histogram and a Pareto Chart?

A histogram uses a bar graph to illustrate the frequency of an event. In the histogram, the bar height is used as the indicator. However, the Pareto Chart is a type of histogram that demonstrates the Pareto philosophy (the 80-20 rule), and it does that by showcasing the order of impact in an event.

What is the most significant thing about a Pareto Chart?

The primary objective of a Pareto Chart is to highlight the most relevant factors in a set. If you’re using the Pareto Chart for your quality control process, it would help you pinpoint defects that if tackled, would lead to a more robust improvement in the data set.

How to calculate cumulative percentage in Pareto Chart?

Let’s say you want to calculate the cumulative percent of the total through the fifth contributor. All you’ve got to do is sum the effects of the first five in rank-ordering, and divide the result by the overall total. Next, multiply your answer by 100.

How to make a Pareto Chart in Excel?

First, highlight your data set. Navigate to the insert tab and choose the histogram symbol. After that, you’ve got to choose the Pareto option, and select your preferred chart title. Finally, choose the + icon on the right side of your chart. You would see a list of options, check the box that is next to the Data labels option.

How to make a Pareto Chart in google sheet?

First, create your data and calculate your cumulative frequencies. After that, you’ve got to insert a combo chart and add the right Y-axis.

How to make a Pareto Chart in Chartexpo?

Open the Excel desktop app, navigate to the insert tab and choose the ChartExpo add-in. Finally, select either the Pareto Bar Chart or the Pareto Column Chart.

What is a Pareto Chart used for?

The Pareto Chart helps you identify the data points that generate the most results. With the Pareto Chart, you can easily identify the defects that, when handled, yield the most improvement of the system.

How do you analyze a Pareto Chart?

Pareto Chart analysis is pretty straightforward — identify the problem and the cause of it, score the problems, group the problems together, add up the scores of each group, and take actions.

How is a Pareto Chart different from a standard vertical bar graph?

In a typical Pareto Chart, the bars are positioned in order of decreasing height with the tallest bar on the left.

Wrap Up:

Getting a good grasp of the main factors that generate the most results in any analysis is easy. Regardless of your level of expertise, you can do that using a Pareto Chart.

The good news is, you don’t need any kind of coding skills to create compelling visuals in a Pareto Chart.

If you’ve got a good grasp of how Microsoft Excel and Google Sheets works, you can create a Pareto Chart — and you get to do that without losing sweat.

Although the Pareto Chart helps in pinpointing the frequency of occurrence of a problem, it does not translate to the significance of such a problem — and you’ve got to keep this in mind.

Now you know the nitty-gritty of a Pareto Chart, what data point will you be measuring using the chart?