Ask an Australian small business owner what they would do if things got severe, and roughly 44% say the first thing they would do is let someone go.
Not trim the product range. Not audit the software. Not review a price list that has not moved in three years. Fire someone.
Reducing the number of products or services offered comes in as a second option for about 31%. Cutting back on software or licences sits at 16%. Price barely rates.
That ordering is not a strategy. It is a reflex — and it is measurably reshaping the Australian business population.
The reflex has a body count
The Australian Bureau of Statistics counts businesses by employment size. The 2024-25 numbers tell a story that most commentary has missed entirely.
| Segment | Share of all businesses | Direction |
|---|---|---|
| Non-employing / sole trader | 64% | +4.3% in 2024-25 |
| 1–4 employees | 25% | Down 38,587 since 2021-22 |
| 5–19 employees | 9% | Falling |
| 20–199 employees | ~2% | Falling |
| 200+ employees | <0.1% | +2.6% in 2024-25 |
Only two segments grew: the very smallest and the very largest. Everything in the middle shrank.
The micro-employer segment — businesses with one to four staff — lost nearly 39,000 businesses. Meanwhile sole traders with no employees grew by 4.3% in a single year.
Those are not unrelated numbers. Businesses are not vanishing. They are shedding staff and reverting to solo operation. The 44% reflex, executed across a national economy, produces exactly this shape.
Why it feels right and is usually wrong
Cutting a role has three properties that make it irresistible under pressure.
It is fast. Notice periods aside, the decision is made in a week. A pricing repositioning takes a quarter.
It is certain. You know precisely what you save. A price rise carries an unknown demand response, and uncertainty is unbearable when you are already stressed.
It feels decisive. Under pressure, doing something visible has psychological value even when it has no commercial value.
Now the other side of the ledger, which is rarely modelled.
You do not save the salary. You save the salary minus the output that person produced, minus redundancy entitlements, minus the recruitment cost when conditions turn, minus the productivity cost of everyone else absorbing the work badly, minus the institutional knowledge that walks out.
You almost always keep the revenue expectation. The most common failure is removing 20% of capacity while budgeting for 100% of last year’s revenue. The gap closes by the owner working more hours, which is not a saving. It is a transfer from the owner’s life to the P&L.
It is not repeatable. You can do it once, maybe twice. Then there is nothing left to cut and the underlying problem — which was almost never headcount — is still there, in a business with less capacity to fix it.
What the underlying problem usually is
In our experience the businesses that reach for redundancy first are, overwhelmingly, not overstaffed. They are underpriced.
Run it on a typical set of numbers. A business at $1 million revenue and a 10% net margin has $100,000 of profit.
| Action | Impact on profit |
|---|---|
| Remove one $85,000 employee | +$85,000 minus their output — frequently net negative |
| Raise prices 5% | +$50,000, with almost no additional cost |
| Cut discretionary costs 10% | +$15,000 |
| Audit software subscriptions | +$5,000–$12,000 |
A 5% price rise is worth more than three times a 10% cost cut and costs nothing to implement. Yet price is the last thing touched and headcount is the first.
The reason is not stupidity. It is that a price rise requires a conversation with a customer, and a redundancy requires a conversation with an employee — and most owners, when honest, find the second one easier to face than the first.
Five things that come before a redundancy
If you are seriously contemplating cutting a role, work through these first. Each is faster than you think and none of them shrinks your capacity.
1. Find out which work actually makes money. Allocate direct cost and a fair share of overhead across your service lines and major clients. Most businesses discover at least one line, or one significant client, that loses money once real cost is applied. Fixing that is worth more than a redundancy and costs you no capacity.
2. Test where you have pricing power. Not a blanket increase. Your newest customers, your most specialised work, and your least price-sensitive segment will generally absorb considerably more than you expect. Your longest-standing, most price-aware customers may absorb nothing. Move where the room is.
3. Audit your subscriptions. Between 25% and 30% of software licences go unused or significantly underused. On a $50,000 annual software spend that is $12,500 to $15,000 a year, recoverable in an afternoon with a bank statement and a filter. It will not save a whole salary, but it buys time to do the harder work properly.
4. Fix the cash cycle before assuming it is a profit problem. Australian small businesses are paid in an average of 24.1 days, with invoices settled an average of 6.9 days late. A great many “we cannot afford this person” conclusions are actually “we cannot afford this person this month” — a timing problem wearing a profitability costume. Payday Super, live since 1 July 2026, has made this worse for every employer.
5. Move the work, not the person. If a role is genuinely too expensive for the value it produces, the question is whether the work is worth doing at all, whether it can be systemised, and whether it can be done by a different resource. An Australian admin role costs $55,000–$70,000 before on-costs; an offshore equivalent runs $400–$1,200 a month. That is not the answer for every role, and it fails badly when done carelessly — but it is a genuine option that most owners never seriously price.
When cutting a role is the right answer
Sometimes it is. Be honest about which situation you are in.
Redundancy is correct when the work itself has genuinely disappeared — a client segment, a service line, a channel that is not coming back. It is correct when a role was built for a scale you no longer have, and it is correct when you have worked the levers above and the gap remains.
It is wrong when it is the first thing you reach for, chosen because it is the conversation you can face rather than the one that would fix the problem.
The uncomfortable summary
Australia has a business population where the only segments growing are sole traders and large corporates. The middle — the businesses that employ people, train them, and generate most of the sector’s productivity — is being hollowed out.
Part of that is cost pressure that no individual owner controls: business costs are up 24.6% since March 2020, wages up 20.3%, insurance up 51.7%, interest up 36.3%.
But part of it is a decision, made hundreds of thousands of times, to reach for the fastest lever instead of the best one.
You do not control the first part. You entirely control the second.
Where to go next
- The Profit Lever Hierarchy — all nine levers, ranked
- Five Things to Do Before You Make Someone Redundant — the detailed version of the checklist above
- Gross Margin by Service Line — how to find out which work makes money
- How to Raise Prices Without Losing Customers — the conversation most owners avoid
- The SaaS Audit — the fastest money in this article
Sources: ABS Counts of Australian Businesses, July 2021 – June 2025; ASBFEO Small Business Data Portal, March quarter 2026; AMP Bank GO Small Business Cost Pressure Index 2026; CPA Australia Asia-Pacific Small Business Survey 2025-26. Figures current as at August 2026.