Abstract Digital transformation (DT) and Big Data Analytics Capabilities (BDAC) enable SMEs to adapt to rapidly changing markets, innovate, and maintain relevance in the digital age. This research explores the impact of DT on SME performance through the lens of BDAC and innovation, from a multi-methods approach and applying the dynamic capabilities view. It asserts that simply investing in DT doesn't ensure enhanced performance. Analyzing 183 Spanish SMEs from various sectors, the study highlights the need for creating specific conditions that enable DT to positively impact performance. The integration of PLS-SEM and fsQCA methodologies provides a comprehensive analysis of BDAC as pivotal in optimizing SME performance through DT, emphasizing the necessity of strategic alignment with innovation. This nuanced approach, combining the predictive power of PLS-SEM and the configurational insights of fsQCA, demonstrates that investment in DT alone is insufficient without fostering conditions conducive to innovation. Our empirical insights offer actionable guidance for managers utilizing BDA or contemplating technological investments to elevate firm performance which go in the direction of increasing their innovation capabilities. Additionally, these findings equip policymakers with a nuanced understanding, enabling the design of tailored measures promoting DT in SMEs anchored in the nuances of BDAC and innovation capabilities.