Small businesses with lower staff turnover are outperforming peers on revenue growth and market expansion, study shows
Workforce stability is increasingly separating Australian small and medium enterprises (SMEs) on growth outcomes, according to findings from the ScotPac SME Growth Index Report.
The research found one in three SMEs recorded higher staff attrition over the past year. Average SME headcount has fallen from 88 full-time equivalent employees in 2014 to 51 today — a decline the report links to broader structural changes in how smaller businesses operate.
Among SMEs experiencing higher attrition, the consequences were mixed. Some 13% reported lower productivity, while 11% missed opportunities to enter new markets. Additional costs were also common: 12% incurred higher induction and training expenses, and 9% increased their reliance on outsourced services. However, an equal share — 13% — reported productivity gains, attributing the improvement to better business processes including AI and automation adoption.
SMEs with stable or low attrition fared considerably better. Nearly one in four reported no difficulty retaining staff. Within that group, 15% grew revenues, 10% entered new markets, and 10% were able to service larger orders and transactions.
"Australian SMEs are becoming significantly leaner businesses, and we are increasingly seeing that productivity is no longer simply about workforce size," said Jon Sutton (pictured right), chief executive of ScotPac. "The SMEs performing strongest are often those investing in workforce stability, smarter operational processes, technology adoption and flexible business structures that allow them to scale more efficiently."
Sutton said the findings also pointed to funding implications on both sides of the divide.
"Recruitment costs, onboarding expenses, outsourcing requirements and productivity disruption can all place additional strain on margins and working capital," he said. "At the same time, businesses with stable teams are often looking to expand, take on larger contracts and invest in growth – and both scenarios create demand for flexible funding solutions."
With SMEs continuing to navigate elevated operating costs and labour market uncertainty, Sutton said access to working capital remained a key factor in operational resilience.
"Whether businesses are managing staff shortages, investing in productivity improvements or positioning for expansion, having reliable access to working capital can make a significant difference to operational resilience and long-term growth."
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