Efficiency of a transmitting antenna is the ratio of power actually radiated (in all directions) to the power absorbed by the antenna terminals. The power supplied to the antenna terminals which is not radiated is converted into heat. This is usually through loss resistance in the antenna's conductors, but can also be due to dielectric or magnetic core losses in antennas (or antenna systems) using such components. Such loss effectively robs power from the transmitter, requiring a stronger transmitter in order to transmit a signal of a given strength.

For instance, if a transmitter delivers 100 W into an antenna having an efficiency of 80%, then the antenna will radiate 80 W as radio waves and produce 20 W of heat. In order to radiate 100 W of power, one would need to use a transmitter capable of supplying 125 W to the antenna. Note that antenna efficiency is a separate issue from impedance matching, which may also reduce the amount of power radiated using a given transmitter. If an SWR meter reads 150 W of incident power and 50 W of reflected power, that means that 100 W have actually been absorbed by the antenna (ignoring transmission line losses). How much of that power has actually been radiated cannot be directly determined through electrical measurements at (or before) the antenna terminals, but would require (for instance) careful measurement of field strength. Fortunately the loss resistance of antenna conductors such as aluminum rods can be calculated and the efficiency of an antenna using such materials predicted.

However loss resistance will generally affect the feedpoint impedance, adding to its resistive (real) component. That resistance will consist of the sum of the radiation resistance Rr and the loss resistance Rloss. If an rms current I is delivered to the terminals of an antenna, then a power of I2Rr will be radiated and a power of I2Rloss will be lost as heat. Therefore, the efficiency of an antenna is equal to Rr / (Rr + Rloss). Of course only the total resistance Rr + Rloss can be directly measured.

According to reciprocity, the efficiency of an antenna used as a receiving antenna is identical to the efficiency as defined above. The power that an antenna will deliver to a receiver (with a proper impedance match) is reduced by the same amount. In some receiving applications, the very inefficient antennas may have little impact on performance. At low frequencies, for example, atmospheric or man-made noise can mask antenna inefficiency. For example, CCIR Rep. 258-3 indicates man-made noise in a residential setting at 40 MHz is about 28 dB above the thermal noise floor. Consequently, an antenna with a 20 dB loss (due to inefficiency) would have little impact on system noise performance. The loss within the antenna will affect the intended signal and the noise/interference identically, leading to no reduction in signal to noise ratio (SNR).

This is fortunate, since antennas at lower frequencies which are not rather large (a good fraction of a wavelength in size) are inevitably inefficient (due to the small radiation resistance Rr of small antennas). Most AM broadcast radios (except for car radios) take advantage of this principle by including a small loop antenna for reception which has an extremely poor efficiency. Using such an inefficient antenna at this low frequency (530–1650 kHz) thus has little effect on the receiver's net performance, but simply requires greater amplification by the receiver's electronics. Contrast this tiny component to the massive and very tall towers used at AM broadcast stations for transmitting at the very same frequency, where every percentage point of reduced antenna efficiency entails a substantial cost.

The definition of antenna gain or power gain already includes the effect of the antenna's efficiency. Therefore, if one is trying to radiate a signal toward a receiver using a transmitter of a given power, one need only compare the gain of various antennas rather than considering the efficiency as well. This is likewise true for a receiving antenna at very high (especially microwave) frequencies, where the point is to receive a signal which is strong compared to the receiver's noise temperature. However, in the case of a directional antenna used for receiving signals with the intention of rejecting interference from different directions, one is no longer concerned with the antenna efficiency, as discussed above. In this case, rather than quoting the antenna gain, one would be more concerned with the directive gain which does not include the effect of antenna (in)efficiency. The directive gain of an antenna can be computed from the published gain divided by the antenna's efficiency.

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