Pareto Chart and Analysis

Pareto Analysis and Pareto Chart in Excel

The Pareto Principle also known as 80/20 principle or 80/20 rule has been applied to business analysis and decision making in variety of business disciplines such as operations management, quality management and marketing management. The application of Pareto principle in marketing is of very high importance. It helps marketing managers understand the key marketing issues, drivers and problems. The 80/20 rule applied in marketing discover important issues such as customer profitability and key business accounts driving the business profitability. It also identifies areas for improvements such as bottom customers. There are many situations in marketing management where this tool helps marketing managers. Another example is understanding distribution and promotion costs for different customers segments. The Pareto Tool easily identifies and rank different customer segments and gives an insight into the business model. Sales managers also use the Pareto Tool to better understand sales force performances and sales regions on costs and profitability. The logic behind this very simple tool is the following: Not all causes and activities produce the same amount of problems, results and opportunities. By using this approach managers can analyze what otherwise looks like random distribution of issues, problems, activities, costs, time, etc.

80% of results come from 20% of activities

In order to perform Pareto Analysis organize your data in two columns in Excel:

Column 1 - Categories (ex: customer segments, sales reps, sales regions, product segments, business units, advertising categories, customers). After you decide what categories you will use for your Pareto Analysis and Chart you need to decide for what time period you want to analyze your data.  

Column 2 - Number of Occurrences (ex: number of products sold, number of new customers, promotional expenses, number of orders). Decide what measurement you will use for your analysis such as cost, time, percent, and quantity. 

Pareto Analysis and Pareto Chart created with Excel4Marketing Toolbox in Excel

With the Excel4Marketing Toolbox for Microsoft Excel you can create Pareto Chart and perform Pareto Analysis with a click of a button. Sample Pareto report created with Excel4Marketing Toolbox:

Pareto Chart is used to visually report and analyze business information. The Pareto Chart is  column chart with two vertical axes. The left one measures the frequency while the right one measures the cumulative percentage. The size of the columns represent the frequency or amount for each category. By creating Pareto Chart you can visually analyze what categories are more significant than others. 

Learn more about Pareto for Excel