Pareto charts are often used to represent which customer segments or product lines are most profitable or contribute most to a company’s revenue. The Pareto principle is also known as the 80-20 rule, which tells us that for many events, 80% of effects come from 20% of the causes. In other words, 20% of your customers likely produce 80% of your revenue.
A Pareto chart is a combination of a bar chart and a line chart, whereby individual units are represented by bars in descending order and the cumulative total is represented by the line. The threshold (70% or 80% for example) is represented by a horizontal line. The segment contribution is determined at the intersection of the cumulative line and the horizontal threshold.
Learn more about Pareto charts and contribution analysis in this brief video. The example you’ll see is from the arcplan Enterprise Free Trial Edition, which you can download here and test with your own corporate data.