A power ratio is a business ratio used by media
companies, such as television or radio stations, to benchmark company
performance in terms of revenue. The greater a company’s power ratio is, the
greater is that company’s ability to generate revenue relative to its market
percentage of audience members. Company executives use power ratios to track
and report trends in sales, to compare company operation with other companies
in the same venue, and to appraise the company for a potential buyout. In order to calculate a power ratio, the company must first
determine its audience share, the percentage of viewers, listeners, or users
who tune in or who use that company’s services. Once the audience share is
known, executives compare the company income to the total market revenue to
determine whether the company is generating the expected amount of income,
given its share of the audience.
When a company obtains a power ratio of 1.0, the
company is producing the amount of income that one would expect for its share
of the audience. A power ratio above 1.0 signifies that the company is
producing income at a level that exceeds expectations. For example, a company
with a power ratio of 1.5 is generating 50 percent more income than expected
based on its market share. Power ratios below 1.0 signal lagging sales and lackluster
income potential.
Media companies calculate a power ratio by dividing the
company revenue by the product of the audience share and the overall market
revenue. For example, WLST radio station determines that it attracts 30 percent
of the listeners of rock music. The revenue for WLST in the last quarter was $400,000 US
Dollars (USD), with the total market revenue for the rock venue at $1 Million
USD. In accordance with the power ratio method, the company multiplies the
audience share by the market revenue, yielding a value of $300 Thousand USD.
Dividing the $400,000 USD in company revenue by the $300,000 USD yields a power
ratio of 1.33.
Marketing research firms generate power ratio and market share reports for entire
formats across the industry. These reports indicate the relative strength of
individual market segments. Research companies can calculate audience share
through surveys, diaries, and polls. The companies also collect data
electronically and through software programs. One company that monitors television audiences globally is AGB
Nielsen Media Research, which uses a microphone to pick up barely audible,
embedded tones in broadcasts to track television viewing.