On what basis do PR agencies use a multiplication factor of 3 to estimate their media equivalent value?

There is no rationale. AVE is being disowned by the thought leaders in the industry and the Barcelona Principles are at the front line of trying to instil the use of measurement standards that actually relate to business objectives. If the PR industry is going to improve its credibility for providing measurable services, this is the way forward.   For reference see: http://kdpaine.blogs.com/themeasurementstandard/2010/06/the-barcelona-principles-checklist.html AVE plus a mystical multiple does not reflect the outcome of a PR campaign, which is the meaningful ROI for a client.   However, some clients will still prefer the thud of a cuttings book to investing in other methods that measure outcomes, and some PR companies will continue to pander to that.

I'd like to add to this that AVE becomes pretty meaningless when you are measuring posts by niche bloggers.  This is because the smaller guys often either charge a nominal price, won't have a rate card or even have any idea on how much they could charge if they did offer ad space.  But if you omit them from your calculation you are hugely discounting the value of such a highly-targeted piece of coverage that is often also promoted to their extended social networks. So really if you insist on using the multiplier, it should be much higher for blogs / online communities because of the social / WOM effect.

Like Andrew Bruce Smith I've been in public relations for more than 20 years and even when I first entered the industry AVEs were known to be nonsense and discredited. Unfortunately they are still used by agencies (I blogged about why in more detail about it a while ago http://sbpr.co/99eY3O) even by those that have signed up to the Barcelona Principles (which are largely a statement of the bleeding obvious, which it's taken the industry a long time to get to). In the past I've judged several PR industry awards (including last year the PRCA awards) and its distressing that you still see AVEs being cited as a measurement and evaluation criteria. This year I'd like to see the organisers of every PR industry awards to set clear rules that AVEs are not an acceptable measure and that every entry using them will be disqualified.

Any system that attempts to put a value on column inches like that is a bit of an embarrassment in modern PR. Essentially they're fudging a meaningless number to make a client go "ah yes, that's something concrete" instead of having to explain the true and more complex value of PR.

I was told the number comes from multiple people reading the same issue where the print circulation is being multiplied, not the ad rate. I've never seen the ad rate multiplied, though I've reported AVE for clients who need it in addition to other metrics to satisfy internal reports. As to its value. measurement of PR is variable. In most situations, the client sets the metric and the agency tries to set the expectation. If the client likes a multiple, I'm happy to multiply. My key concern is that the metrics and goals are in line with the value PR provides to the company. Impressions, circulations and unique visitors, along with other ways to count eyeballs are worthwhile, as are demographics to know whose eyeballs we are talking about. Content clearly matters, along with tone, placement within the outlet, credibility, article type and may other factors. The work to produce a report that pulls all of the important factors together into a digestible report is near to impossible, and even trying can take more effort than the program itself. That's why you see technology and experts trying to fill the void. None meet the cost/effectiveness threshold for most clients yet, so you're stuck with something that's "good enough." Sometimes that includes a multiple on circulation.

Wasn't David Ogilvy the source for the "editorial is worth more than ad space" thinking? Here is a question from a few months ago that might be relevant to this debate

As most respondents have pointed out, AVEs are tosh and multipliers are fantasy numbers. There is no robust academic research that gives any credence to multipliers but there is a good paper from the Institute of Public Relations -http://www.instituteforpr.org/research_single/dispelling_the_myth/ from Mark Weiner and Don Batholomew which examines the claims for multipliers and knocks them on the head.

Be the change. I haven't used AVE for years and don't intend to go back to it any time soon. Also, it's refreshing to see so many people arguing AVE is dead.

I was always told that the reason for the factor of three was that editorial was seen as three times more trustworthy than advertising. Of course, three was also used by many - including newspapers - as a way of judging readership/circulation because it was considered that each newspaper was read by three people (though I know - anecdotally I hasten to add - of one magazine that used a multiplier of 45 as it was in dentist and GP offices). But as many have pointed out, AVE is pretty much tosh. But it's an easy metric for many so that's why it has endured I believe.