Pareto Chart

The Pareto Chart definition may sound complex and confusing, but it is actually quite simple. The confusion comes from the many different names for the laws governing this chart, such as Pareto Principle, 80-20 Rule and others.

By looking at the background of the Pareto Principle and its origins, you can more clearly determine what it is and how you use it.

The History of the Pareto Principle

The Pareto Principle has an interesting background story. Its origin dates back to 1896 and economist Vilfredo Pareto, from which the law gets its namesake.

Vilfredo Pareto was an Italian economist, political scientist, philosopher and civil engineer. He discovered what would later be deemed the Pareto Principle while studying at the University of Lausanne in Switzerland.

He was analyzing the distribution of wealth and income in his home country of Italy. He observed that 80% of the wealth and land in Italy was owned by just 20% of the population.

He applied the same theory to other countries and found a similar distribution. This is why the Pareto Principle is commonly known as the 80-20 Rule.

However, Vilfredo Pareto’s work wouldn’t be fully appreciated until almost 50 years later. That’s when Joseph Juran came across Pareto’s work. Juran realized that this 80-20 Pareto Rule applies to far more than just wealth and income.

Juran generalized the Pareto Law to say that roughly 80% of results or consequences come from only 20% of your actions. In other words, 20% of your inputs create 80% of the output.

He was the first to look at a Pareto Principle in business settings, realizing that it could be helpful in management and quality control. Since then, teams have used the Pareto Principle in marketing, sales optimization and more.

What is the 80-20 Rule?

The 80-20 Rule changes depending on what you’re evaluating. However, the general 80-20 Rule definition is 20% of your input generates 80% of the output.

Essentially, the 80-20 Rule tells you that most of your results come from just a small part of your efforts. If you can identify that small group of inputs, you can take steps to improve them, thereby maximizing your results.

These inputs and outputs aren’t always positive. When Joseph Juran first applied the 80-20 Rule, he was looking at quality control. He found that 80% of quality issues originated from 20% of sources.

By correcting this small number of sources, Juran found he could resolve the majority of problems.

The 80-20 Rule aims to reveal your vital few versus the trivial many. The vital few are the 20% of inputs that yield this huge 80% output. In marketing, for example, your vital few may be the top 20% of leads or keywords that produce 80% of your revenue.

Juran was the first to suggest this concept of the vital few versus the trivial many. However, you shouldn’t ignore the trivial many. These efforts still produce some of your results. That’s why many professionals are renaming the trivial many to the “useful many.”

Understanding the Pareto Distribution

The Pareto distribution, or 80-20 Law, is an observed pattern or relationship that occurs in many applications of data, including quality control, economics, probability and more.

The Pareto curve helps show this distribution by mapping each input’s contribution to the total results. You can see the culminating effort of each item and identify where your vital few and useful many are.

There is a difference between the Pareto distribution and Pareto Principle. Mainly, the distribution is a strict 80-20 split, which follows the Pareto Principle’s law.

However, the actual Pareto distribution doesn’t always come out to exactly 80-20. These numbers are more of approximations.

The Pareto Principle suggests that a small percentage of actions or inputs contribute a substantial percentage of your total results. Typically, these numbers will come out to roughly 20 and 80, hence the name.

The Pareto Distribution doesn’t treat these numbers as estimates. If you apply this model to your chart, your Pareto curve will create an exact 80-20 split.

This isn’t too big of a problem, as long as you understand that it won’t always be a perfect 80-20 ratio. You may have some vital few activities that fall just outside that 20% range.

What Does a Pareto Chart Show?

A Pareto Chart’s purpose is to help you visualize your data and see your Pareto curve. This Pareto line allows you to quickly identify your vital few versus the useful many.

Visualizing data allows you to understand the information faster than spreadsheets, making it the most efficient way to interact with your numbers and figures.

The Pareto Chart displays each category or item in order of value, so your biggest contributors appear first. The list then proceeds in descending order.

By ordering the categories by value, you immediately start to see your most significant contributors versus ones that don’t produce very many results.

Next, you’ll notice the Pareto curve line across the chart. This reflects each item’s contribution to the total results.

The slope of the line is steep at first, reflecting your vital few inputs that take up 80% of the results. Then, it slowly tapers off to include the rest of your items and the remaining 20% of value.

In ChartExpo’s Pareto Chart, there is also a clear box drawn to distinguish the vital few versus the useful many. This helps you identify your top-tier actions, without having to perform any additional analysis.

Before you can genuinely start applying the Pareto Principle to your own data and using the 80-20 Rule, you need to turn your spreadsheets into a Pareto Chart.

Visualizing your data is the easiest and quickest method to understanding the best or worst performers in your spreadsheet. And, ChartExpo is the best tool to use when making Pareto Charts. It has a simple system that takes coding, scripting and other headaches out of the equation.

The Problem with Other Pareto Chart Makers

ChartExpo is not the only tool that allows you to create a Pareto Chart. However, it is the easiest and quickest to use!

The problem with other visualization tools and chart makers is they add unnecessary steps and tedium to the process.

These unnecessary steps and procedures create a learning curve that you must overcome before you start visualizing your data using the Pareto Rule. This is time that you could spend making improvements to your vital few and correcting potential problems!

Ideally, you want a tool that can create a Pareto Chart with the least amount of effort possible. This means you can commit all of your time and energy to actually analyzing the chart and discovering insights.

ChartExpo works alongside your existing spreadsheets, whether you use Microsoft Excel or Google Sheets. So, there’s no new tool or software to learn.

You don’t even need a Pareto formula! All you have to do is select the data for your Pareto Chart and you’re done. ChartExpo does all of the legwork in the background.

Your finished Pareto Chart will appear as soon as you click the “Create Chart” button. Data analysis is hard enough; charting should make it easier, not harder. That’s the mission of ChartExpo.

ChartExpo’s Easy 3-Step Pareto Chart Maker

ChartExpo streamlines the process of creating a Pareto Chart. It removes the friction and obstacles you typically experience with other charting tools.

With a library of different charts and diagrams, your first step in creating a Pareto Chart with ChartExpo is finding this visualization option.

You can either scroll through all the available chart types or enter “Pareto Chart” in the search bar. Once you’ve found it, click it to select it as your intended chart. That’s the first step.

Next, you’ll tell ChartExpo what data you want to use for your Pareto Chart. If you didn’t order your data by value, ChartExpo will rearrange it for you. This saves you an additional step and headache!

You can include many categories of data, or just a couple. The Pareto Chart is very versatile and adaptable in this way. You can really customize it to match your needs.

After you’ve instructed ChartExpo which rows and columns to use for your Pareto Diagram, all that’s left to do is click “Create Chart.” Step 3 is just a single click of the mouse!

Your new visualization will appear instantly. You’re ready to begin analyzing the information and finding your vital few and useful many.

Pareto Charting and Reporting are More Accessible than Ever

Thanks to this simple charting system, creating engaging Pareto Charts is more accessible than ever before. You don’t have to be a professional data scientist to start building these charts and including them in your reports.

Plus, creating a new chart takes only a few minutes. This means you can go directly to the visual analysis, without getting bogged down in making your Pareto graph.

This accessibility will empower your whole team to start using charts more often. They’ll be finding new and helpful ways to apply the Pareto Rule to your organization!

When more people engage with the data, there’s a higher chance of making new discoveries. Each team member has a different background and perspective on how to solve a problem.

You’ll have people from different perspectives and backgrounds interacting with the same information. Someone coming at the problem from a new angle may be able to offer a creative solution based on their Pareto Chart discoveries.

The reports you make will be easier to understand. You can use the Pareto Chart alongside these presentations to help stakeholders and clients understand what’s happening behind all the numbers and spreadsheets.

Remember, ChartExpo offers unique chart types. It’s much more than just a Pareto Chart maker. With this Pareto tool, you can completely streamline all of your visual analysis and data storytelling.

No Coding or Scripting Required

The codeless environment of ChartExpo’s 3-step system brings the skill level for data visualization way down. This is why it is so accessible; anyone on your team or in your organization can use ChartExpo’s tool.

Meanwhile, other Pareto Charts ask you to enter and edit scripts and Pareto formulas. This requires some coding and data science expertise, which prevents some people from creating and editing their own charts.

Even if you have the coding knowledge and using scripts is something you’re familiar with, it isn’t the most efficient approach.

For one, you have to manually enter your information to change the script to fit your data. Typos or wrong entries can lead to inaccurate results or stop you from creating your chart altogether. You’ll have to go back line by line until you find the mistake.

Secondly, it takes more time to use a script than the ChartExpo system. Even if you’re a master at coding, you can’t beat ChartExpo’s speed. You can go from raw data to complete Pareto Chart in just a few clicks.

That’s always going to be faster than coding because there is no wasted time as you edit your scripts to make the Pareto Chart! ChartExpo is the quickest and easiest method to go from spreadsheet to visualization.

Knowing how to read a Pareto Chart is crucial to your Pareto analysis. This is how you get the most value from your Pareto Diagram.

Accurately interpreting a Pareto Chart requires knowing what each part of the visualization means and represents. This enables you to completely understand your vital few and useful many and where the division between each category is.

What is Pareto Analysis?

Pareto analysis is the act of investigating your data with the intent of finding your 80-20 Rule split. In other words, Pareto analysis is about identifying your vital few inputs versus the useful many.

The best approach to a Pareto analysis is to use a Pareto Chart. Data visualization is the key to getting to the core of your data and understanding the stories behind the numbers.

Visualization — using the Pareto Chart or other chart types — allows you to engage with data much faster than the raw numbers. It’s the difference between reading a thousand words or seeing a single picture.

Your brain is highly trained at receiving and decoding visual data. It performs this function constantly, whenever your eyes are open.

As a result, the human brain processes visual data 60,000 times faster than text. You also remember visuals longer and more clearly than something you’ve read. Thus, knowing how to use a Pareto Chart is the best way to engage with your data and understand the most and least important parts.

It’s important to note that Pareto analysis is not something you do once and forget about. Instead, it is an ongoing process. This will help you continuously identify your most significant performers and problems, depending on the data you’re analyzing.

The more you perform this analysis, the better you’ll understand your vital few activities and optimize for them accordingly.

The Importance of the Pareto Curve

As you analyze your Pareto Chart, pay close attention to the curve or Pareto line. This seemingly minor detail is the key to figuring out your vital few and useful many. It also shows where the division between these two categories lies.

The Pareto curve will typically be a culminating line that shows each category’s contribution to the whole. When the line hits 80%, the categories included are your “vital few,” while the remaining items make up the useful many.

In ChartExpo’s Pareto Chart, this line cascades across each category. The slope is steep at first, but tapers off. This helps express the major output of your vital few versus the contribution of the rest of your data categories.

Keep in mind that not every data set will follow the Pareto Law perfectly. You may even have an equal distribution across your data, suggesting that there is little or no distinction between vital and useful components.

Your Pareto curve allows you to instantly determine whether or not you can apply the Pareto Rule to your selected spreadsheet. If the curve doesn’t have that sharp initial slope, there may not be a clear group of vital few inputs.

It should be the first thing you look at when viewing your Pareto Chart!

Start with Your Most Significant Data First

Performing visual analysis means discovering insights and putting that newfound knowledge to work. If your analysis doesn’t lead to action, it was not a helpful endeavor.

The Pareto Chart is one of the most actionable visualizations because it immediately shows you the most significant parts, whether positive or negative.

Thus, you can immediately begin optimizing for your greatest strengths or correcting your most substantial shortcomings.

When acting on your Pareto Diagram, starting with your vital few first is always imperative. Often, your vital few are the smoking guns of your data set. They are the most obvious and significant factors that require immediate attention.

This is one of the main objectives of the 80-20 Rule. It points you in the direction of the data points that need attention first, allowing you to optimize your time, attention and other resources.

The Pareto Chart organizes your data by value. So, your most substantial items or categories appear first. For example, if your Pareto Chart is looking at revenue by location, the first location listed will be the one that contributes the most to your revenue.

You can treat the Pareto Chart’s listing as a priority list, starting with the most substantial items and moving down the list as you go.

Don’t Forget About Your Useful Many!

As you’re applying your Pareto Chart insights, you may reach a point where you’ve optimized for every item in your vital few.

How you optimize your vital few items depends on the type of data you’re analyzing. For example, you may be looking at error messages causing the most crashes. Or, you could be investigating keywords that produce the most traffic.

Optimizing your vital few in these two scenarios will be dramatically different.

That said, once you’re done with the vital few and there are no more smoking guns, don’t think that the work is over.

Some data users will neglect their useful many and only focus on the vital few. Yet, this leaves roughly 20% of your results unaccounted for.

When there are no more smoking guns and obvious factors to take care of, it’s time to shift your attention to this category. While the useful many may not contribute as much to your end results, it is still critical to explore these items.

It may be this extra 20% that helps you gain an edge over competitors and other teams! Plus, optimizing an item in your useful many may increase its contribution, moving it to your vital few list.

Exploring different Pareto Chart examples further answers what is the Pareto Principle. Not only will you learn what a Pareto Chart looks like, but also how to use the 80-20 Rule to discover your vital few and improve your strategies.

In other words, it’s not just about seeing how to make a Pareto Chart. You need to also know how to perform Pareto analysis step-by-step. This will explain the entire process and how to best use your Pareto Chart results.

See Your Vital Few

The primary objective of a Pareto Chart is to identify your vital few. To recap, the vital few are the small group of inputs or strategies that produce the majority of your results. The 80-20 Rule states that approximately 80% of your results come from only 20% of activities.

By discovering these critical items in your data set, you have a starting point for your follow-up actions. This is something that many professionals often lack. You’re handed a new project and have no idea where to begin.

Thanks to the Pareto Chart and your vital few, you have a list of your most significant contributors and a great place to start making improvements.

The vital few categories can be positive or negative, depending on the scope of your Pareto analysis. A negative vital few could be sources of lost revenue. You need to correct the most significant losses first.

Alternatively, you may be looking at email messages with the highest conversion rates. The top items on your list are the vital few that reflect your most successful email marketing messages.

In both scenarios, identifying these vital few categories is incredibly valuable. You’ll be able to spend your resources in the areas that create the most considerable improvements for your overall results.

Faster Than Spreadsheets and Other Pareto Tools

Is it possible to find your most significant data components without the Pareto Chart? Yes. However, it is not nearly as efficient or reliable.

Using a chart will always be faster than studying a spreadsheet and looking at raw figures. Your brain is hardwired to analyze visual data, but it works much slower when processing text.

This means that the Pareto Diagram shows you your vital few faster than any other method. Plus, the visualization is easier to remember and you can effectively present your findings to others.

The speed of the Pareto Chart is a considerable advantage. Your vital few represent your most significant performers or detractors. They are the best start to making a substantial improvement to your strategies.

The quicker you can detect and respond to your vital few, the better the value. For instance, if your vital few items reflect user experience problems or loss of sales, you want to patch these holes immediately. The longer you wait, the more substantial the issues become.

The same is true when your vital few are your top positive performers. You want to act on this information quickly and start making solid improvements. After all, the data may change and reflect a new vital few in the future.

Versatile and Universal — So Many Ways to Apply the Pareto Principle!

This concept of the vital few versus the useful many is applicable across all fields, making the Pareto Chart one of the most versatile and universal tools you can use.

It’s always nice to know what your most important data items are. When you have a large spreadsheet, this can help you prioritize what information you investigate first.

The Pareto Chart will automatically order your data from most valuable to least, allowing you to quickly assess the most critical parts.

This can be a huge asset when you’re working with overwhelming spreadsheets. You don’t have to worry about the order of the entries. The Pareto Chart will organize them for you.

The universal nature of the Pareto Chart also makes it accessible for all audiences. It’s an excellent tool to communicate data findings to stakeholders and clients.

While you may be familiar with your data and spreadsheets, other parties aren’t as comfortable. This can make it challenging to present your data to stakeholders or clients.

The Pareto Diagram is the perfect tool because it showcases your most and least significant data. You can use it to justify how you spend your time by demonstrating that you are optimizing for the absolute best data categories.

Examples of Pareto Charts

To demonstrate the versatility of the Pareto Chart and its many applications, let’s look at the many ways you can apply the 80-20 Rule to different scenarios.

The first Pareto Principle example is how Vilfredo Pareto first discovered the 80-20 Rule and what we now call the Pareto distribution.

Pareto found that 20% of Italy’s population controlled 80% of the land and wealth, showcasing the massive disparity between the upper and lower classes.

Another one of the best 80-20 Rule examples is the classic business management lesson that 80% of sales come from only 20% of your clients.

When Joseph Juran came across the Pareto Principle, he applied it to quality control, discovering that 80% of problems come from the same 20% of issues.

Microsoft used the Pareto Principle in a similar manner. They solved 80% of crashes and failures by fixing 20% of the most-reported bugs.

Many applications of the 80-20 Rule also appear in digital marketing. For instance, 80% of your clicks will come from just 20% of your keywords. Alternatively, 80% of your social media likes will come from just 20% of your total posts.

The 80-20 Rule has even found its way into sports. In baseball, teams use various stats to evaluate players and their worth, especially in terms of creating runs and wins. It’s been found that about 15% of the player base produces 85% of the wins.

Identify Your Best Performers and Worst Issues — the Vital Few

The greatest advantage of the Pareto Principle is the ability to unlock your vital few. No matter the scope of your analysis, these vital few categories are the most significant, whether positive or negative.

Identifying the best and worst parts of your strategies showcases what’s working and what isn’t. Using these insights, you can mitigate the most damaging risks and optimize for your best opportunities.

Sometimes, your vital few are evident at first glance, but that isn’t always the case and rarely are you aware of every item producing these high-quality results.

The Pareto Chart makes it clear and easy to distinguish the vital few from the useful many. Again, speed is crucial.

If you take too long to resolve a problem found in your vital few, it continues to create negative results. Even worse, an easy-to-fix issue may be an impossible crisis to manage later.

You can think of it as a small leak in a boat. Is it a serious problem that you need to address? Absolutely. And, the longer you take to patch the hole, the more severe the issue becomes. It’s harder to fix the longer you wait because now you have to repair the hole and remove the water in your boat.

The longer you wait, the worse a problem becomes. The same is true of top performers in your vital few. You want to jump on the opportunity, not wait for it to pass you by.

Optimize Your Time and Resources on What Matters Most

The real value of knowing your vital few is gaining purpose and direction. When approaching any problem or opportunity, one of the hardest questions to answer is “Where do I start?”

Thanks to the vital few and the Pareto Principle, you always have items to take care of that will produce significant improvements to your strategies.

If you stop a negative vital few item, you prevent further performance loss. Similarly, taking action on one of your best-performing components will produce the most significant improvement.

With this knowledge, you can apply your time, money, attention and other crucial (and often limited) resources to the products, services, strategies and other details that produce the best results.

This creates the best returns for your investment. Again, the investment isn’t always dollars and cents. Using the Pareto Principle also ensures that you optimize how you spend your time.

There are only so many hours in the day. If you want to maximize your results, you have to prioritize the decisions and efforts with the most reward. The Pareto Chart helps show you what items are worth your time and which you can put on the back burner for the time being.

If you spend your time wisely, you’ll never feel like you don’t have enough of it.

Make Smarter, More Productive Decisions

Optimizing your time and resources means consistently making more intelligent decisions. The Pareto Principle helps you adopt a data-driven approach to decision-making.

Instead of guessing what the best course of action is, you can use your data and the 80-20 Rule to definitively determine the smartest choices to make.

When you eliminate guesswork from your decision-making, you consistently make smarter selections. Opinions, gut feelings and other attitudes can distract you from what really matters and lead you down undesirable paths.

Thanks to the Pareto Chart, you always have actionable data to fuel your decisions and help you plot the best path towards your goals.

The benefit of the Pareto Chart is its ability to make you more productive. What’s the difference between productivity and efficiency?

An efficient individual gets the most amount of activities down with the time they have. This is good, but being productive is even better. When you’re productive, you get the correct activities done in the best order to maximize your results.

Not only do productive decisions lead to better results, but they also ensure that you continuously move your strategies and efforts in the right direction.

There are more performance increases and fewer losses when you rely on your vital few and the 80-20 Rule.

Improve Continuously With the 80-20 Rule

Productive decision-making helps you maintain the best path towards reaching your goals. Even when the data changes and you need to adjust your decisions, the Pareto Principle shows you the best ways to adapt.

The vital few components shown in your Pareto Chart give you a priority list of activities. You always know your best performers and your most significant faults.

This means you always have tangible steps to improve your products, services and other strategies. Plus, your Pareto Chart vital few show the most substantial steps you can take.

You can take a small amount of time out of your day and make significant progress toward your goals. Even just a 1% improvement can grow into an unbeatable advantage.

The power of continuous improvement is that positive growth builds and grows; it doesn’t simply add. This is often referred to as the aggregation of marginal gains. Small increases are not incremental, but exponential.

For example, if you decided to improve your results by 1% each day for a year, you’d actually produce 3,778% improvement, not 365%. Again, progress grows. It doesn’t simply add.

As long as you keep an eye on your Pareto Chart, you’ll always have a list of items worth improving. You don’t have to spend countless hours analyzing what to do next — your Pareto Chart shows you the way.

Even when there are no more smoking guns in your vital few category, the Pareto Chart will still show you the most productive way to approach the useful many group.

The bottom line: the Pareto Chart and the 80-20 Rule are the best tools for optimizing your efforts and maximizing your results.