How should you correctly read a Pareto chart?

The correct approach to reading a Pareto chart involves analyzing the data displayed in descending order of sales contribution. This method highlights the most significant items contributing to a particular outcome, often following the Pareto principle, which states that roughly 80% of effects come from 20% of causes. By arranging the products or SKUs this way, it becomes easier to identify which specific items have the greatest impact on overall sales or profits, allowing for more informed decision-making in category management.

A Pareto chart typically features both bars and a cumulative line, making it visually effective for pinpointing the critical few items that deserve focused attention, which is essential in category management strategies. This clear visualization aids in prioritizing resources and efforts towards the most impactful products, rather than spreading attention too thinly over all options.