How productivity is shaping Australian manufacturing performance

Revenue growth remains an important measure of performance, but margins, productivity, working capital and the returns generated from investment are also key.

The same issue is playing out across the broader Australian economy. Recent Productivity Commission data shows labour productivity remained flat in the June 2026 quarter, with output and hours worked both increasing. For manufacturers, improving productivity is crucial to stay competitive as businesses manage higher costs and more moderate demand.

Findings from our Manufacturing Benchmarks report 2026 reinforce this, as industry sales growth moderated to 4.1 per cent in FY26, while EBITDA margins recovered to 10.6 per cent. The strongest performers combined revenue growth with effective cost management, productivity improvements and continued investment in capability.

Productivity as a growth driver

With sales growth moderating, productivity provides an opportunity to improve performance through better use of resources. Employee costs accounted for 23.6 per cent of revenue across the benchmark data in FY26, while softer demand and persistent input cost pressures continued to impact manufacturers' cost bases.

Improving productivity can be achieved in different ways, from automation and AI to better production planning, procurement, inventory management or workforce utilisation. The Productivity Commission's 2026 bulletin highlights the importance of investing in the right type of capital, and using new and existing capital effectively. For manufacturers, the focus shouldn’t only be where to make change or invest, but where these changes can have the greatest operational and financial impact.

Investment with a focus on efficiency

Manufacturing capital expenditure increased from 3.5 per cent to 4.3 per cent of revenue in FY26 – the largest acceleration since FY23. Among mid-sized manufacturers, property, plant and equipment increased from 11.1 per cent to 13.0 per cent of revenue, while capital expenditure increased from 3.6 per cent to 4.5 per cent. This shows that manufacturers are continuing to invest in their asset base, even as growth has moderated.

But the real question is whether that investment is helping businesses improve their productivity and performance. Considering what each investment is intended to achieve can help ensure that capital is directed where it’ll make the most impact – whether that’s improving production, addressing a capacity constraint or supporting other growth ambitions.

How scale is influencing performance

Our benchmarks show a widening performance gap between manufacturers of different sizes. Businesses generating more than $150m revenue recorded average sales growth of 5.6 per cent in FY26, compared with a 7.8 per cent decline among businesses generating less than $75m.

Larger manufacturers can have greater purchasing power, investment capacity and access to systems and processes that support operational efficiency and working capital. These advantages can make it easier to absorb cost pressures and continue investing through periods of more moderate growth. But the results also show that strong performance isn’t limited to the largest manufacturers. Smaller manufacturers improved gross margins despite declining revenue, with product mix, product portfolio management discipline and supply chain reviews contributing to the improvement.

For businesses with less capacity to invest, targeted improvements can still make a meaningful difference. Focusing on the right areas can make a significant impact on profitability and improve performance without requiring a broad transformation program.

Growth, profitability and cash generation

Our benchmarks also demonstrate that growth alone doesn’t tell the full story. Revenue and profitability outcomes are different across the manufacturing sector – shaped by market conditions, operating environments, business models and conditions unique to each business. Agribusiness, Food & Beverage manufacturers recorded 7.2 per cent revenue growth in FY26 and the highest average EBITDA margin in the benchmark data at 15.6 per cent. Consumer & Household Goods manufacturers, by comparison, recorded revenue growth of 1.6 per cent, but achieved an 11.7 per cent EBITDA margin and a 37.5 per cent gross margin.

This shows that slower revenue growth doesn’t necessarily mean weaker performance. Where demand and capacity support expansion, growth can create value. For other businesses, protecting margins and improving efficiency may be more important. In both cases, the ability to turn performance into cash matters.

Industry debtor days increased from 52.3 to 54.3 days, while total inventory value across the benchmark data increased by 18 per cent over the two years to FY26. As sales and operations grow, more cash can be tied up in receivables and inventory – making cash conversion an important part of sustainable growth.

Building sustainable performance 

Taken together, our benchmarks show that growth remains important, but the strongest results come when businesses are also improving productivity, managing costs, investing effectively and converting earnings into cash. Scale can provide an advantage, particularly through greater investment capacity and purchasing power, but manufacturers of all sizes can improve performance by focusing on the areas that matter most to their business.

For businesses reviewing their performance and priorities, the starting point is understanding where performance is strong, where pressure is emerging and where targeted improvements could have the greatest impact. Our Manufacturing Benchmarks report 2026 provides a useful reference point, drawing on data from 100 mid-sized Australian manufacturers across growth, profitability, productivity, capital allocation and working capital.

If you’d like to discuss how these trends compare with your business and what they could mean for your priorities, please get in touch.

Manufacturing Benchmarks 2026: Scale as a competitive advantage

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