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In any business, data visualization is one of the most effective ways to interpret complex data. Various processes must take place to ensure the continuity of your business.
When undertaking business projects, it is essential to identify the issues that have the most significant impact.
Have you ever found yourself prioritizing significant issues that can affect your business? If yes, you have conducted surveys to identify such issues before they cause more problems.
This is where a Pareto Chart comes in.
This visualization helps you represent the most important factors, which enables you to prioritize them.
This blog will help you understand how to read a Pareto Chart and analyze such information.
But first, let’s define the chart.
Definition: A Pareto Chart is a diagram with a line chart and bar graph mix. The chart obeys a principle called the Pareto Principle.
The Pareto Principle is also known as the 80-20 rule.
The bars in the Pareto Chart represent data points. In this case, the data points are individual problems represented by bars arranged from the largest to the smallest.
The curve line in the chart represents the cumulative total of your data set.
That’s not all.
The Pareto Chart has an 80% cut-off line that obeys the 80-20 principle. In essence, the 80-20 principle asserts that 80% of the output is determined by 20% of the work done.
The Pareto Chart helps you identify the pitfalls, defects, and complaints that you can easily count. This principle tells you that 80% of the flaws in your business are caused by 20% of the causes or actions.
Assume you want to determine the sales of your products. Suppose you are running multiple products and want to determine which product is doing better than others.
Which charts and graphs can we use for such information? You guessed right. A Pareto Chart will give the best results.
Why?
We want to determine which 80% of the products performed well and which 20% did not give good results.
Let’s use the table below.
| Products | Current | Previous |
| Garments | 916 | 727 |
| Electronics | 286 | 138 |
| Cosmetics | 44 | 13 |
| Toys | 73 | 41 |
| Furniture | 77 | 54 |
Let’s follow the simple steps below to obtain a Pareto Chart:
Your final chart will appear as shown below.
We will use the example in our Google Sheets to create a Pareto Chart in Excel.
To get started with ChartExpo in Excel, follow the steps below:
Your final chart will appear as shown below.
After creating a horizontal Pareto Chart in both Google Sheets and Excel, it’s time we understood how to read a Pareto Chart.
We will use the Pareto Chart we created above to understand how to interpret a Pareto Chart.
The Pareto Chart shows multiple products sales in previous and current sales. Your objective was to determine which product performed better and the ones that contributed a minor sales.
Garments had the best sales in their current and previous sessions. On the other hand, Toys and cosmetics contributed the least sales to the ROI.
A Pareto Chart arranges bars from the largest to the smallest. The best performing products were the first as you move down to the least performing products.
Furthermore, there is an easy way to reading a Pareto Chart.
Since the Pareto Chart has a cumulative line, it can be challenging for the newbies to read the chart. How to analyze a Pareto Chart is not complicated as it may seem.
It is essential to learn about what is displayed in the various axes of the Pareto Chart.
Each horizontal bar represents a product. The bar length shows the sales totals by each product.
Garments performed the most in the current and previous periods. For instance, Garments performed 66% of the total sales across all products.
The cumulative percentage shows how each product performed compared to the rest. You would easily see that Garments and Electronics generated a staggering 80% of the sales across all products. These five products combined for the best sales across all products.
What’s interesting is the fact that garments best-performing product is above the orange line. This orange line signals the top 20% of product. The line shows the vital few product responsible for the best sales.
These are the products you will primarily focus on.
Products that fall below the orange line are the useful ones. Still, they should be the secondary focus of the overall sales.
You now understand how to analyze a Pareto Chart.
Most PPC managers spend much time analyzing keywords but don’t achieve their desired results.
Keyword analytics is essential in paid search marketing, guaranteeing a high return on investment if done correctly.
When you apply the 80-20 rule, keyword analytics becomes easier. You can focus on the most productive keywords. 20% of the SEO analytics is usually the most profitable.
When you use the Pareto Chart, you will realize that 20% of your costs contribute to 80% of your expenses.
You can use a Pareto Chart to determine the expense causes and their overall contribution to your business expenses. This will help you cut down costs in your business. Therefore, it is essential you understand how to read a Pareto Chart.
When you analyze your business, a Pareto Chart can help you identify areas you can focus on. Every aspect of the activity is paramount to the business’ growth. Still, it is essential to prioritize the most significant contributors to your business.
A Pareto Chart can also help you realize that 20% of workers in your business do 80% of the overall work. In addition, 80% of your business’s revenue comes from 20% of the business product.
Such business areas can help you measure your business performance over time.
When you understand how to read a Pareto Chart, you identify the vital few and useful many in your business. When you identify such parameters, you can determine where to prioritize.
A Pareto Chart helps you focus on a few business parameters that give the best output.
The chart can help you determine where to direct your attention to. This advantage is beneficial when it comes to making decisions for the business. Your decision-making will primarily focus on the vital aspects contributing to business growth.
A Pareto Chart can help employees focus on an organizational problem that can offer improvement potential. Employees can focus on solving the minor problem before it significantly affects the organization.
A Pareto Chart helps you observe qualitative data. This visualization will help you rank business problems in order of priority.
The chart displays these business issues in bars, from the most to least significant. This layout helps you determine the factors to shift your attention.
One of the primary differences between a Pareto Chart and a Bar Graph is the presence of a cumulative curve in the Pareto Chart.
The bars in a Pareto Chart are arranged from the largest to smallest as you move from left to right.
Having an idea of the few factors that contribute significantly to any business output is easy. This is only possible with the use of a Pareto Chart.
This is exciting because you don’t need expertise and knowledge to visualize such data. We have learned what a Pareto Chart and its uses are.
At first, the visualization seemed complicated to a newbie, but now you can understand how to read a Pareto Chart.
We used a practical example to help you understand how to analyze and interpret a Pareto. We did this by creating a Pareto Chart both in Google Sheets and Excel.
We supercharged our spreadsheet applications with a third-party application called ChartExpo. We could visualize our data with an irresistible Pareto Chart.
You did not break a sweat when creating a Pareto Chart because we used easy-to-follow steps.
Here is the kicker.
You can now do it on your own. Take advantage of the incredible ChartExpo third-party application. Start a 7-day free trial to access unique visualizations such as the Pareto Chart.
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