<p>The linkage between energy utilization and sustainability is gaining substantial attention in the literature. Nevertheless, little attention has been given to understanding biogas energy utilization and sustainability in Small and Medium Enterprises (SMEs) in developing countries. This study examines the cost–benefit dynamics of biogas technology adoption and their implications for the economic sustainability of milk processing SMEs in Tanzania. Data were collected from 150 milk processing SMEs in northern Tanzania through a snowball sampling technique. A quasi-experimental research design, incorporating both quantitative and econometric analyses to assess the influence of key variables related to the use of biogas technology on milk processing performance. The inferential statistics reveal significant variations in capital investment, labour utilization, and energy efficiency among milk processing SMEs. The econometric analyses further highlight key determinants of sustainability. The installation of biogas digesters (− 0.32, p = 0.001) and gas storage tanks (− 0.58, p = 0.000) negatively affects economic sustainability. Energy utilization (0.47, p = 0.001) has a significant positive influence, reinforcing the importance of optimizing energy consumption for improved operational efficiency. The study recommends introducing an affordable payment mode of installing the technology to lessen the adverse association between initial costs and economic sustainability, Additionally, targeted capacity-building and training interventions are proposed to strengthen labour efficiency and maximize the productivity gains associated with biogas adoption among SMEs.</p>