A$6,700 a month, and the mid-market keeps spending

The cost-of-doing-business story has mostly been told from the small end: the cafe closing, the tradie watching margins vanish. New research commissioned by the accounting software firm MYOB moves it up a weight class, into the mid-market, and the picture there is different.

Australia’s mid-sized businesses are absorbing an average of about A$6,700 a month in higher operating costs, according to a survey of 371 leaders at companies with 20 to 500 employees and annual revenue above A$5 million. Only 1 per cent said their costs had not risen at all. At the larger end, among firms with 200 to 500 staff, 42 per cent reported monthly increases above A$10,000 over the past year. Fuel, energy and insurance lead the list of culprits.

What separates the mid-market from the small end is the response. Rather than retrench, most of these firms are spending through the squeeze. Six in ten expect their own revenue to rise over the coming year, a third plan to add full-time staff and more than half expect to lift pay. Almost half, 49 per cent, intend to increase investment in information technology systems, 44 per cent in plant and equipment, and 43 per cent in research and development. To rein in what they can, 46 per cent are investing in efficiency measures and 45 per cent are renegotiating supplier contracts.

That confidence sits on top of a hard rate environment. The Reserve Bank of Australia (RBA) lifted the cash rate to 4.85 per cent on 3 November, its fifth rise of the year and the highest level since 2008, which lands directly on any mid-sized firm carrying debt. MYOB’s mid-market chief, Paul Voges, read the cost responses as a sign of resilience, saying they “won’t remove every pressure, but they highlight how businesses are adapting their operations.”

The logic of spending into a squeeze is defensible for a firm with room to move. A business large enough to renegotiate contracts, automate a process or push into a new line can grow its way past a fixed cost base, where a smaller rival can only cut. It is also the kind of firm that gets badly hurt if the bet is wrong, because A$6,700 a month is a manageable number right up until revenue stalls and it becomes the reason the quarter does not clear.

Two cautions sit under the figure. The research was commissioned by a software vendor with an interest in businesses investing in systems, and “mid-sized” and “average” each hide a wide spread, from a 20-person firm to a 500-person one. The direction of travel is clear enough across other data, including the Australian Bureau of Statistics finding that costs rose for 46 per cent of businesses in its final conditions survey. The precise A$6,700 belongs to one survey, and should be read as its signal rather than a settled national number.

The split in this data is the real signal. The small end is cutting to survive while the mid-market spends to get bigger, betting growth outruns the cost base before the cost base catches the growth. In a 4.85 per cent world that bet works for the firms with pricing power and a full pipeline, and turns quickly on the ones without either. Watch the 200-to-500 bracket carrying more than A$10,000 a month: that is where the next round of restructures, and the next round of breakout winners, will both come from.