Xero finds New Zealand small business productivity lags

Xero has published its first measure of small-business productivity in New Zealand, showing Kiwi small and medium-sized enterprises lagging behind peers in Australia and the United Kingdom.

In the March quarter, small business labour productivity was NZD $74.00 per hour worked, down from NZD $75.30 in the previous quarter and below the long-term average of NZD $76.30. The metric measures the dollar value produced for each hour worked by a typical employee in a small business.

Productivity per employee also eased in the quarter, averaging NZD $9,168.90, down from NZD $9,389.30 in the prior quarter. It remained close to the longer-run average of NZD $9,137.00.

The findings point to a broader weakness in the country's small-business sector, as firms face rising costs and margin pressure. Lower output per hour worked can limit businesses' ability to increase profits, lift pay and compete more effectively.

Global gap

International comparisons in the same dataset showed New Zealand continuing to trail Australia and the UK. While those two markets have alternated positions in recent years, New Zealand has consistently remained below both.

The gap suggests the problem is not limited to a single quarter. Instead, it points to a more persistent challenge for the small-business economy, where output gains have not kept pace with those in comparable markets.

Bridget Snelling, Country Manager - Aotearoa New Zealand, Xero, said the lack of greater improvement was concerning. "It's disappointing we're not seeing the kind of improvement needed to lift the small business economy," Snelling said.

She said the international comparison was also a warning sign.

"Falling behind international peers like Australia and the UK is a reminder that lifting productivity needs to be a long-term priority," Snelling said. "The encouraging part is that there are clear levers - from digital adoption to skills and process improvements - that can help close that gap over time. Our small businesses can't afford to sit still; this needs to be a priority."

Sector split

The figures showed wide variation across industries. Manufacturing, construction and real estate services ranked among the most productive sectors, while hospitality remained at the bottom by a substantial margin.

Retail stood out for recent improvement. Productivity in the sector rose 9.1% year on year over the past six months, the strongest increase among the industries covered.

The rise reflected retailers lifting sales without a matching increase in hours worked, resulting in greater output from the same level of labour input.

Hospitality, by contrast, continued to trail other sectors. Its weaker reading underlines the uneven nature of the recovery and the different pressures facing labour-intensive businesses.

Regional picture

Regional results were also mixed, with local industry make-up playing a major role. Hawke's Bay, which has a stronger manufacturing base, recorded the highest productivity levels, while Otago ranked among the weakest performers due to its greater reliance on tourism.

Otago did record the fastest improvement over the past six months, with productivity growth of 7.4% year on year. That suggests the tourism recovery is beginning to narrow the gap, even though the region still trails others on overall levels.

Snelling said the issue had direct consequences for business owners. "For small business owners, improving productivity isn't just an economic concept - it's a practical way to grow profits and lift wages, regardless of wider conditions," she said. "There are clear opportunities here. Businesses that invest in the right processes, skills and digital tools are better placed to free up time, focus on customers and drive growth."

Policy and business

Stronger productivity will require action from both business owners and policymakers. Xero highlighted skills development, infrastructure and digital adoption as areas that could influence output across the wider economy.

The company also linked the issue to the use of technology, including artificial intelligence, while noting that confidence remains a barrier for some small firms. That points to a divide between willingness to try new tools and the practical obstacles to their wider use.

Snelling said lower-performing industries may need particular attention.

"Policy settings that support skills development, infrastructure and digital adoption play a key role in lifting productivity across the economy, while targeted attention in lower-performing sectors such as hospitality could help unlock further gains," she said. "We recently released a survey looking at attitudes towards AI for small businesses, and we know they are already leaning into AI and digital tools to save time and work smarter, but confidence remains a real barrier to going further.

"At the same time, small business owners can take practical steps to improve productivity by refining operations and adopting technology. Digital tools, including AI-powered solutions, can automate time-intensive tasks, helping businesses focus more on generating revenue."