Attribution analysis is a versatile tool that analyzes your business performance by highlighting the best-performing channel or comparing it against a benchmark. Using this technique effectively allows you to extract meaningful information from data, curate more profitable strategies, and allocate resources efficiently.
Here at Business2Community, we’ve meticulously prepared this comprehensive guide to master attribution analysis, including an actionable example so you can utilize this skill and help your business thrive.
Attribution Analysis – Key Takeaways
- Attribution analysis is a tool for evaluating how each component in your strategy contributes to profits and how it aligns with a benchmark.
- The two most common types of attribution analysis are marketing attribution analysis and portfolio attribution analysis.
- Just like all analytical tools, this technique comes with a few limitations so you should always carry out further analyses to cross-examine your results.
What is Attribution Analysis?
Attribution analysis, sometimes known as return attribution analysis or performance attribution analysis, is an evaluation tool for analyzing a channel or portfolio’s performance and profitability. This technique is widely used in the marketing and investment fields to help stakeholders decide the best strategies for growth.
In the marketing sector, attribution analysis measures the profit brought by the different marketing channels in your marketing campaigns to find out where and when a conversion happens. Marketers use this tool to better understand the customer journey to curate the most personalized services.
This effective tool in the digital marketing world can be divided into several popular attribution models:
- First click: The first touchpoint accounts for 100% of the conversion
- Last click: The last touchpoint accounts for 100% of the conversion
- Linear: Various touchpoints contribute evenly to a conversion
- U-shaped/position-based: The first and last touchpoints contribute to the largest percentage of a conversion while the touchpoints in between contribute a small percentage.
- Time decay: All touchpoints share some contribution to a conversion with the touchpoints closer to the conversion time carrying heavier weights.
Besides being a useful method in building attribution models for marketers, attribution analysis is also vital for investors when optimizing portfolios.
In stock investments, this technique compares a portfolio’s performance against a pre-selected benchmark to determine how well the portfolio is doing. Investors and clients can also use this method to assess a portfolio manager’s capability to deliver satisfactory results.
By making comparisons, you can identify sources of excess returns, gain a deeper understanding of your asset allocation tactics, and investigate the weight of specific segments in a portfolio.
The benchmark can be anything from the current top-performing portfolio to the Dow Jones Industrial Average as long as it is quantifiable, investable, owned, clearly defined, and reflects the current investment environment.
The different portfolio attribution models are:
- Brinson-Fachler Model: This model looks into three main factors, namely the allocation effect, the selection effect, and the interaction effect. The allocation effect measures the returns brought by different segments to judge how asset allocation affects profits. The selection effect refers to the impact of specific stocks/securities on active returns. The interaction effect is concerned with the combined effect of both allocation and selection effects.
- Brinson-Hood-Beebower Model: It is a simpler version of the Brinson-Fachler Model that ignores the interaction effects and only focuses on the other two components.
- Karnosky-Singer Model: This model focuses on global attribution and currency attribution. Global attribution deals with the effect of security selection on returns whereas, currency attribution investigates the direct currency effect on returns.
- Risk-Adjusted Attribution Models: Using an information ratio, it identifies the systematic and unsystematic risks of the portfolio to measure its performance.
Who Needs to Do an Attribution Analysis?
Attribution analysis benefits a wide range of stakeholders in the investment universe and marketing sector. To demonstrate its value, here are a few examples of this technique in various roles:
- Investment managers use this method to investigate portfolio returns and portfolio weights to make more informed investment decisions.
- Fund managers and portfolio managers use this analysis to evaluate and adjust their investment strategies based on market performance. It helps formulate successful strategies and explain to clients about the excess return.
- Business owners use this technique to evaluate the performance of portfolio managers and identify talent for promotion.
- Marketers use this tool to determine the effectiveness of various marketing channels and formulate cost-effective marketing strategies.
How to Perform an Attribution Analysis
To conduct an attribution analysis, follow these 5 steps:
Step 1: Define Your Goals
Defining your goals is the first step to producing meaningful attribution analysis results. What do you want to achieve with this analysis? Are you looking to evaluate your portfolio performance? Or are you trying to figure out which marketing channel brings the highest conversion rates? Goals help you target your analysis to gain the most meaningful results.
Once you have developed a clear goal, set the appropriate benchmark/metrics used to measure the results. Benchmarks for investors can be comparable funds or regional indices, and metrics for marketers might be email marketing data or website analytics information.
Step 2: Choose Your Attribution Model
Whether you’re doing a marketing attribution analysis or a portfolio attribution analysis, there are various attribution models to choose from. These different attribution models focus on dissecting performance with various metrics.
Depending on your research purposes and data availability, choosing a suitable attribution model allows you to locate the answers to your questions more effectively. You can find a rundown of the different models in the previous section.
Step 3: Collect Data
Next, based on the metrics you set, this is the time to collect relevant data. The data you collect must be timely, quantifiable, and from reputable sources to ensure validity. Reliable information can be gathered from public filings, company records, and official papers, for example for investment analysis and your marketing team should have data if that’s what you’re investigating.
This step is extremely important because analyzing a poor data set won’t give you accurate results and may point you in the wrong direction entirely.
Step 4: Conduct an Attribution Analysis
Once you’ve put together all the information, you can analyze your data to reveal valuable insights. If you’re doing a marketing attribution analysis, you can analyze the performance by using metrics like viewing hours, click rates, and purchase rates on different marketing channels to identify the best-performing one.
If you’re doing a portfolio attribution analysis, you can compare the portfolio returns against the benchmark returns to get an idea about your risk management and asset selection strategy.
Step 5: Write an Attribution Report
With the analysis results in hand, you can prepare an attribution report and share it with your team. For marketing attribution analysis, the report should reveal the digital footpath of your customers and highlight the best marketing channel for conversions. From there, you and your team can work out the best ways to put your new insights to good use.
For portfolio attribution analysis, the report should list how different portfolio weights contribute to returns and the overall performance compared to the market benchmark. You should share the results with your team to help them make better informed decisions too.
Examples of Attribution Analysis
Attribution analysis offers incredible insights into your business performance. It sets quantifiable benchmark returns to compare and highlights the importance of different factors.
Below, we will use two examples to demonstrate the value of attribution analysis and how it can revolutionize your business.
Example 1: Assessing a Wealth Manager’s Portfolio and Strategy
You are considering whether to change your wealth manager, so you define your goal as understanding a prospective wealth manager‘s investment style. To conduct this particular attribution analysis, you choose the attribution model Brinson-Hood-Beebower Model.
To collect the data, you ask the potential portfolio manager for their portfolio breakdown by sector. You also choose to measure the portfolio against the S&P 500 as a benchmark since it has a growth rate you’d expect to see in your portfolio.
The asset allocation in your portfolio and the benchmark are shown in the table below:
| Portfolio manager | Benchmark | |
| Utility | 83% | 60% |
| Technology | 11% | 20% |
| Healthcare | 6% | 20% |
Conducting the attribution analysis, you can see that the portfolio manager you’re assessing is highly skewed towards the utility sector, with over 80% of assets in that category while they have a low exposure to the tech sector, which means they could be missing out on high-growth opportunities.
You decide to write an attribution report to help you compare this wealth manager to others. You can then use the report to start a discussion with the manager to understand their strategy and if it is right for you.
Example 2: Refining Your Marketing Campaigns
You’re a manager in a marketing department and want to know where to invest spending for the next financial year, so you define your question as wanting to understand where most leads are generated in the sales funnel.
The attribution model you choose to use is the time-decay model and you collect data from your generated leads database to understand where the sales in the last quarter came from, which gives you the chart below.
As you conduct your analysis, it’s clear that sales meetings are the most successful channel for lead generation and more sales can be attributed to the steps further along the sales funnel. You also find that the social media marketing campaign is performing poorly, suggesting that it may be best to allocate its resources elsewhere.
Finally, you write an attribution report to explain to your supervisor that you intend to invest in training for those taking the sales meetings to ensure all possible conversions are captured. You also highlight the issue with social media marketing and mention that email contacts could be optimized. Finally, you advise the supervisor to invest in reviewing the sales flow to convert better so that those taking the sales meetings can focus on fewer, high-quality interactions.
How to Adjust an Attribution Analysis
Finish your analysis but find confusing or unhelpful results? Don’t worry. It’s generally pretty simple to adjust and search for more meaningful insights. To adjust an attribution analysis, here are a few things you can do:
- Change the benchmark. Sometimes, the pre-selected benchmark may not fully reflect reality. Adjusting the benchmark offers you a fresh perspective on market performance as well as your own performance.
- Adjust the metrics. Whether you’re looking at the market value of your stocks or the asset distribution of your portfolio, using different metrics can provide a new look into your profile and produce new insights.
- Try different marketing/investment strategies. You can implement various strategies to observe their impact on the analysis results and decide the best one for your operations.
Limitations of Attribution Analysis
No analysis method is perfect. Despite being a potent tool, attribution analysis still has its limitations. In this section, we’ll go through some of its major disadvantages and how you can be aware of these limitations when utilizing this tool.
It Doesn’t Account for Qualitative Factors
Attribution analysis exclusively looks at quantifiable numbers, ignoring qualitative factors like customer satisfaction, company goodwill, and legal compliance. These external factors may make it beneficial to continue using a marketing channel that doesn’t seem to convert, for example.
Companies rely on building a positive image to attract loyal customers. Sometimes, the company’s image is the cumulative effect of both quantitative and qualitative factors. Unfortunately, this technique can’t take non-quantifiable elements into account. You can incorporate analyses like PESTEL analysis to compensate for it.
It Doesn’t Offer Actionable Solutions
While this technique can reveal the discrepancy between the benchmark returns and portfolio returns for investment managers, it doesn’t offer any actionable solutions to resolve the gap. Without guidelines to follow, human bias can cause different stakeholders to react to the results differently.
It Doesn’t Consider the Correlation Effects Among Factors
This technique doesn’t go deep into the relationships among factors, which can play a huge role in influencing the results together. If you single out a factor without truly understanding its value, it could potentially lead to catastrophic results at work. You can conduct techniques like cluster analysis to uncover the relationships among different factors.
The Value of Attribution Analysis
In attribution analysis, components that make up your sales and profits are scrutinized extensively. Marketing attribution analysis and portfolio attribution analysis are the two most common forms of this technique adopted by professionals.
Marketing attribution analysis allows you to measure the importance of different marketing channels by calculating their respective contribution to the sales outcome. You can centralize resources to the top-performing channels to reap the best results or strategize to maximize underperforming channels.
On the other hand, portfolio attribution analysis can reveal the portfolio’s asset allocation, marketing timing, and the portfolio manager’s investment style to assess how capable the portfolio manager is in diversifying and buying and selling at the right time.
Overall, this powerful tool is simple and effective in analyzing your business strategies, which is perfect for new business owners without in-depth knowledge of the statistical field.