Advertising Value Equivalency (AVE) is what your editorial coverage would cost if it were advertising space (or time).
To calculate the AVE for one month, measure the space (column inches) occupied by a clip (for radio and television coverage, of course, you measure time). Then multiply the column inches (time) by the ad rate for that page (time slot).
After you do the same for every clip for that month, add up the costs to get a total cost. The total cost is the cost of the ads that theoretically could have occupied the space (time) occupied by all your editorial coverage for that month.
Advertising Value Equivalency is a navigational metric: it can provide rough measurements that can help you navigate your PR program toward higher profitability.
Many PR people incorrectly assume that AVE is an evaluative metric. That is to say, they assume that it can help them measure the profitability of their programs, because it appears to show a "dollar value" of publicity.
But the "dollar value" is not a measurement of value; it is a measurement of cost.
Evaluative metrics do measure dollar value: the value of increased revenue or the value of reduced costs that resulted from your publicity.
Moreover, even as a navigational metric, AVE has several weaknesses.
AVE numbers can drastically overestimate or underestimate the "equivalency" in "advertising value equivalency."
Consider that a highly positive article can be worth much more than a single advertisement in the same space.
That's because readers consciously or unconsciously think of an advertisement as an instance of a company boasting about itself (and paying dearly for the privilege of doing so), and an article as an implied endorsement by a presumably objective and knowledgeable third party (the editor who approved the copy on that page). So, from this perspective, AVE understates the value of editorial.
Advertising and publicity have complementary strengths. Generally speaking, advertising tends to command attention and create awareness. Publicity tends to build credibility. Normally you need both.
AVE clouds this issue by falsely equating advertising and publicity, which in turn reinforces the ancient but ever-popular fallacy that publicity is "free advertising." In fact, it is not free and it is not advertising.
On the other hand, many PR people overstate the advertising value equivalency of editorial coverage, because they calculate the cost of the space occupied by the whole article – even if only one sentence mentioned the company.
The Institute for Public Relations in 2003 published a thoughtful and insightful report (no longer accessible, it seems) that raised two additional objections:
(1) What is the value of a negative story? (2) What is the value of the absence of coverage in cases where the PR people involved were working specifically to keep the story out of the papers? Those are very good questions.
In summary, the use of this technique can perpetuate two major fallacies: (1) that editorial is "free advertising," and (2) that dollar cost equals dollar value.
We marketers should be looking for opportunities to debunk these notions, not reinforce them, because many managers have never questioned them and still believe them.
If you're trying to educate your management about how PR works, this technique is highly counterproductive.