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What is Pareto Chart Analysis? A Complete Guide for 2025

What is Pareto Chart Analysis? A Complete Guide for 2025

Q: 1. Can Pareto analysis be used in service industries, and if so, how?

Yes, Pareto analysis can be used to identify key service issues, like customer complaints, delays, or inefficiencies. For example, if a service provider finds that a few common service failures lead to most customer complaints, Pareto analysis can help prioritize which issues to address first. This ensures that efforts are focused on the problems that will have the most significant impact on customer satisfaction.

Q: 2. How can I apply Pareto analysis to customer feedback data when responses are qualitative rather than quantitative?

In such cases, you can categorize customer feedback into themes (e.g., quality issues, customer support, pricing concerns) and count the frequency of each theme to apply Pareto analysis. By grouping similar responses, you can treat qualitative feedback as quantitative data and make meaningful insights from it.

Q: 3. Does Pareto analysis only work with problems, or can it also be used for identifying opportunities?

Pareto analysis isn’t limited to problems. It can also identify areas that generate the most value, like high-performing products or top clients, helping you focus on growth opportunities. This allows businesses to not only resolve issues but also capitalize on areas with the greatest potential for success.

Q: 4. How often should I update my Pareto analysis? Is it a one-time analysis?

Pareto analysis should be updated regularly, especially when conditions change (e.g., customer preferences, product performance, or market trends). You should revisit it when significant changes occur in your business. This ensures that the analysis remains relevant and aligns with current data, helping you make informed decisions.

Q: 5. How do I handle Pareto charts when the data is not clear-cut or has overlapping causes?

In such cases, it’s helpful to categorize overlapping causes into broader groups. For example, if you have multiple related product issues, group them under a single category (e.g., product defects) for clearer analysis. This simplifies the process and still provides useful insights for prioritizing actions.

Q: 6. Can Pareto analysis help in finding the root cause of a problem?

While Pareto analysis identifies which areas or factors contribute the most, it doesn’t necessarily pinpoint the root cause. For deeper insights, combine it with techniques like root cause analysis or the 5 Whys. By addressing the root causes, you can prevent the problems from recurring.

Q: 7. How do I manage the 80/20 rule when there are more than two contributing factors?

The 80/20 rule is just a guideline, not a strict rule. If you find more than two factors that contribute significantly, expand the analysis to the top 30% or 40% based on the impact they have, depending on the context. This flexibility allows you to better capture and address the most important contributors.

Q: 8. Can Pareto analysis be used to optimize employee performance?

Yes, you can use Pareto analysis to identify the top-performing employees or teams and understand what drives their success. This can help you replicate their practices across the organization. By learning from the best, you can enhance the overall performance of your workforce.

Q: 9. How do I determine the right time frame for conducting Pareto analysis?

The time frame should be aligned with the nature of the problem. For recurring issues, a month-to-quarter timeframe is useful, but for long-term trends or large-scale issues, a yearly analysis might be more appropriate. The right timeframe ensures you capture the most relevant data for meaningful analysis.

Q: 10. What’s the best way to handle low-impact issues that still appear on a Pareto chart?

Low-impact issues might still require attention if they are critical to customer satisfaction or brand reputation. Consider addressing them after tackling the major contributors, or set a separate improvement strategy for them. This ensures that even smaller issues are handled strategically without detracting from bigger priorities.

By Rohit Sharma

Updated on Apr 30, 2025 | 14 min read | 1.3k views

Table of Contents

Did you know? Pareto chart analysis, based on the 80/20 rule, is widely used to identify and prioritize the most impactful issues in various industries. By visually highlighting key factors, Pareto charts help organizations focus resources on the 20% of causes that lead to 80% of the outcomes.

The need for effective data analysis tools is driven by the increasing complexity of decision-making processes across various industries.

For example, a retail company uses Pareto chart analysis to identify the top 20% of products that generate 80% of their sales. Focusing on these high-performing products helps them optimize inventory, improve product placement, and tailor marketing strategies to boost sales. This is why professionals skilled in using Pareto charts for data analytics are highly sought after.

In this blog, you’ll learn what is Pareto chart analysis, how to create pareto chart in excel, and the relevant career growth opportunities in 2025.

If you want to explore the more advanced data analysis techniques, upGrad’s online data science courses can help you. Along with improving your knowledge in Python, Machine Learning, AI, Tableau, and SQL, you will gain practical insights and hands-on experience to tackle real-world problems.

What is Pareto Chart Analysis? Key Insights

So, what is Pareto chart analysis, and why is it such a powerful tool in business? In business, it’s common to find that 80% of your sales come from 20% of your customers or products. Similarly, 80% of customer complaints might stem from 20% of your products or services.

In fact, according to a study by McKinsey, 80% of a company’s profits typically come from just 20% of its customers. The Pareto chart makes this visible, helping you focus your resources on the most impactful areas.

It can be addressing a few high-complaint products or prioritizing your top-performing customers. By identifying these crucial 20%, you can drive more effective and efficient decision-making.

In 2025, professionals who can use data analytics tools, like Pareto chart analysis, to drive business decisions will be in high demand. If you're looking to develop skills in data-driven decision-making, here are some top-rated courses to help you get there:

Understanding the Pareto Principle

The pareto principle helps you focus on the vital few issues rather than getting lost in less impactful ones. The principle allows you to make better, more informed decisions by focusing on the areas that will give you the most value.

Let’s say you run a retail business. If 80% of your sales come from 20% of your products, you’ll know where to focus your marketing efforts.

Example in Code:

If you're working with sales data in Python, you can create a Pareto chart like this:

import matplotlib.pyplot as plt
import numpy as np

# Sample data: products and sales
products = ['Product A', 'Product B', 'Product C', 'Product D', 'Product E']
sales = [5000, 3000, 1000, 500, 200]

# Sorting sales in descending order
sorted_sales = sorted(sales, reverse=True)
sorted_products = [products[i] for i in np.argsort(sales)[::-1]]

# Create Pareto chart
plt.bar(sorted_products, sorted_sales)
plt.xlabel('Products')
plt.ylabel('Sales')
plt.title('Pareto Chart: Sales by Product')
plt.show()

Output:

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This chart would show you which products contribute the most to your sales. You could focus your efforts on the top-selling products to boost your business.

The Pareto Principle is a powerful concept that helps you make smarter decisions by focusing on the factors that matter most.

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Also Read: Top Data Analytics Tools Every Data Scientist Should Know About

Now that you know what is Pareto Chart, let’s see how to perform Pareto Analysis using Pareto Charts.

How to Perform Pareto Analysis? Key Steps

Performing Pareto analysis is a powerful way to focus on the factors that have the biggest impact. This kind of targeted action ensures you're not wasting time on trivial issues but rather investing in the areas that will bring the highest return on investment. It gives you data-driven clarity, allowing you to make more informed, impactful decisions.

Here's a step-by-step guide to help you apply the 80/20 rule effectively:

Step 1: Collect Your Data

The first step is to collect the data you want to analyze. This could be anything from sales data, customer complaints, production defects, or service downtimes. For example, let’s say you’re analyzing customer complaints for a company.

Example Data:

Product A: 50 complaints

Product B: 150 complaints

Product C: 30 complaints

Product D: 80 complaints

Product E: 20 complaints

Also Read: Harnessing Data: An Introduction to Data Collection [Types, Methods, Steps & Challenges]

Step 2: Sort the Data

Once you’ve gathered your data, sort it in descending order. Sorting helps you quickly spot the factors causing the most significant impact.

Sorted Data:

Product B: 150 complaints

Product D: 80 complaints

Product A: 50 complaints

Product C: 30 complaints

Product E: 20 complaints

Step 3: Create the Pareto Chart

Next, plot your data on a Pareto chart. This will show the frequency of each factor (like complaints) and help you see the "vital few" that contribute to most of the outcome.

Example: The bars will show you the number of complaints for each product. Product B will have the largest bar, indicating it is the product with the most complaints.

Step 4: Interpret the Results

Finally, interpret the chart. The leftmost bars (the "vital few") represent the factors that cause most of the issues. In this example, Product B is causing the highest number of complaints, which could indicate a design flaw, quality issue, or a customer service gap.

Insight: If Product B accounts for 150 complaints, and the total number of complaints across all products is 330, then Product B represents 45.5% of all complaints. By addressing the issues with Product B, you can resolve nearly half of the complaints.

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Also Read: How to Become a Data Scientist - Answer in 9 Easy Steps

How to Create Pareto Chart in Excel?

Now, let’s go through how to create Pareto chart in Excel using the same unsorted data.

Step 1: First, enter your data into Excel. Set up two columns: one for the products and the other for the number of complaints.

Product	Complaints
Product A	50
Product B	150
Product C	30
Product D	80
Product E	20

Step 2: Sort the data in descending order. Select the data range, go to the Data tab, and click Sort. Sort by "Complaints" in Descending Order.

Resulting Sorted Data:

Product B: 150 complaints

Product D: 80 complaints

Product A: 50 complaints

Product C: 30 complaints

Product E: 20 complaints

Step 3: Now that your data is sorted, highlight it and go to the Insert tab. Click on Bar Chart, and then select Pareto Chart (if you're using Excel 2016 or later).

Chart Overview: Excel will automatically create a Pareto chart, with bars representing the number of complaints for each product, and a line showing the cumulative percentage.

Step 4: You can customize the chart for better clarity. For example, you can add data labels, adjust the color of bars, or format the cumulative line.

Customization Tips: To add data labels, click the chart, go to Chart Elements, and select Data Labels to display the exact complaint numbers on the bars.

Step 5: Look at the Pareto chart. The bars show how many complaints each product has. The cumulative percentage line will show the total complaints as you move from left to right.

Insight: In the Pareto chart, Product B has the highest bar, and the cumulative percentage reveals that it accounts for 45.5% of the total complaints.

This means addressing issues with Product B should be your top priority, as it contributes to nearly half of the complaints. By focusing on this product, you can significantly reduce the overall number of complaints.

If you want to learn more about statistical analysis, upGrad’s free Basics of Inferential Statistics course can help you. You will learn probability, distributions, and sampling techniques to draw accurate conclusions from random data samples.

Also Read: 25+ Data Analysis Software Applications in 2025

Now that you know how to create Pareto Chart in Excel, let’s look at some of the key use cases where it can be applied with some Pareto Chart examples.

What are the Use Cases of Pareto Chart? Examples

Pareto charts are powerful because they help businesses focus on the key issues that have the greatest impact. Companies can prioritize efforts where they matter most by identifying the critical few factors responsible for most of the problems or results.

Pareto analysis provides clear, actionable insights that allow businesses to solve key problems and optimize performance.v

Here’s how you can use Pareto charts in real-world scenarios:

1. Customer Service: Identifying Key Problems

In customer service, Pareto charts help you identify which issues are causing the most complaints. By focusing on the "vital few" problems, you can make improvements that will reduce the majority of complaints.

Example: If you work in customer service, you might find that 80% of complaints come from just 20% of your products or services. A Pareto chart will show you which products or services need immediate attention. This insight helps you prioritize improvements.

Also Read: 5 Ways to Provide an Exceptional Customer Service

2. Production Processes: Spotting Bottlenecks

In manufacturing, Pareto charts are perfect for identifying the most common defects or bottlenecks in production. Once you know which areas are the biggest culprits, you can focus your efforts on fixing them.

Example: If you’re in production and notice frequent delays, a Pareto chart can show you which stages in the process are causing 80% of the delays. Whether it’s machine downtime, material shortages, or labor issues, you’ll know where to target improvements.

3. Sales: Understanding Revenue Distribution

In sales, Pareto analysis helps you understand which customers or products generate the most revenue. By identifying your top customers or products, you can direct your efforts to retain or promote them more effectively.

Example: You might discover that 80% of your sales come from just 20% of your customers. With this information, you can focus on providing exceptional service to these key clients to increase retention and sales.

4. Healthcare: Analyzing Patient Complaints

Hospitals and clinics can use Pareto charts to identify the most common reasons for patient complaints. By addressing the few factors causing the majority of complaints, healthcare providers can improve patient satisfaction and quality of care.

Example: A hospital may find that most patient complaints are about long waiting times. A Pareto chart can show you that 80% of complaints come from a small number of departments. Focusing on these departments can drastically improve the patient experience.

Also Read: AI in Healthcare: Stats on Market Growth & Patient Impact

5. Retail: Identifying Inventory Issues

In retail, Pareto charts can help identify which products are most likely to run out of stock or have issues with inventory management. This helps retailers optimize stock levels and reduce stockouts.

Example: A retailer could use a Pareto chart to identify that 80% of stockouts are caused by just 20% of the products. With this insight, they can focus on improving the supply chain for those key products to ensure they remain in stock.

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Also Read: How Data Mining in Retail & E-commerce is changing the future

Next, let’s look at some of the benefits and limitations of Pareto Analysis, and some best practices to overcome common issues.

What are the Benefits and Limitations of Pareto Analysis?

Pareto analysis allows businesses to target those for improvements and reduce overall customer dissatisfaction. However, it may fall short in more complex situations where problems are interrelated or evolve over time.

In fields such as healthcare or software development, where issues are multifaceted, alternative methods like root cause analysis or trend analysis may provide deeper insights and more long-term solutions.

While Pareto is excellent for quick, high-level decision-making, it is not always suited for dynamic or complex problem-solving.

Here are some key benefits and limitations of Pareto Analysis:

Benefits	Limitations
Easy to understand and use, making it ideal for quick decision-making.	May miss complex interdependencies, ignoring smaller but still important issues.
Provides a clear, objective way to prioritize problems based on actual data.	Focuses on historical data, which may not reflect evolving issues.
Targets high-impact areas, making it efficient for resource allocation.	It overlooks the less significant causes, which might still have long-term effects.
Helps businesses quickly identify what needs attention, leading to faster resolutions.	Only identifies the top causes, which can lead to incomplete solutions.

To maximize the effectiveness of Pareto analysis, consider these best practices:

Ensure your data reflects current conditions. Outdated or incomplete data may lead to faulty conclusions.
Situations change over time, so regularly revisit your Pareto analysis to ensure you're addressing the most relevant issues.
Use Pareto analysis to identify high-impact areas, but also explore root causes through other techniques like cause-and-effect diagrams.
Pair Pareto analysis with methods like 5 Whys or Fishbone Diagrams for a more thorough understanding of the problems.
After implementing changes based on Pareto insights, check if those changes have had the desired impact, and adjust if needed.

By following these practices, you can make the most of Pareto analysis while avoiding common pitfalls and ensuring that your decisions lead to lasting improvements.

Also Read: Top 10 Six Sigma Tools: Manage Quality Like a Pro!

Now that you know how to successfully perform Pareto Analysis, the next step is to keep upskilling yourself. Let’s explore how upGrad can help you master data analysis.

Learn Data Analysis with upGrad!

Data-driven decision-making and efficient problem-solving are becoming crucial for businesses to remain competitive. If you are a key decision-maker in a company, learning tools like Pareto chart analysis can significantly improve your ability to identify key areas that drive the most impact. This is where upGrad can support your career growth.

It offers courses in data analytics, business intelligence, statistical methods, and decision-making strategies.

While the courses covered above provide a solid foundation in Pareto analysis, here are some free upGrad courses and resources that can help you continue learning:

If you're ready to take the next step in your career, connect with upGrad’s career counseling for personalized guidance. You can also visit a nearby upGrad center for hands-on training to enhance your data analysis skills and open up new career opportunities!

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References:

https://www.mckinsey.com/capabilities/growth-marketing-and-sales/our-insights/experience-led-growth-a-new-way-to-create-value