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Nominal level is the operating level at which an electronic signal processing device is designed to operate. The electronic circuits that make up such equipment are limited in the maximum signal they can handle and the low-level internally generated electronic noise they add to the signal. The difference between the internal noise and the maximum level is the device's dynamic range. The nominal level is the level that these devices were designed to operate at, for best dynamic range and adequate headroom. When a signal is chained with improper gain staging through many devices, clipping may occur or the system may operate with reduced dynamic range.

In audio, a related measurement, signal-to-noise ratio, is usually defined as the difference between the nominal level and the noise floor, leaving the headroom as the difference between nominal and maximum output. It is important to realize that the measured level is a time average, meaning that the peaks of audio signals regularly exceed the measured average level. The headroom measurement defines how far the peak levels can stray from the nominal measured level before clipping. The difference between the peaks and the average for a given signal is the crest factor.

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