The paper investigates the structural factors that affect labour productivity performance in European business services. We estimate the productivity frontier for eight business services sectors and five size classes. Subsequently, we explain the distance of firms to the productivity frontier (X-inefficiencies) and scale efficiency by market structure characteristics, entry- and exit intensity, and national regulatory features. The frontier is assessed both by parametric and by nonparametric methods on a data panel for 13 EU countries. We find that scale effects are important in business services; firms with less than 20 employees experience substantial scale-related productivity disadvantages. Productivity performance of firms is improved by having more competitors and more dynamic entry-exit selection, while market concentration and regulation intensity work out negatively.