As in other sub-Saharan African countries, purebred dairy genetics such as Holsteins were imported to Malawi. The study investigated their economic performance by comparing them with local Zebu-crossbreds based on 131 smallholder dairy farm observations from Southern Malawi. High-yielding purebred cows and crossbred cows showed no significant differences in lactation yield and calving interval. Looking at the farms’ actual costs, by-products such as maize bran clearly dominated the cost structure for both breeds, but crossbreeds showed significantly lower concentrate costs. While there was no statistically significant difference in income for both breed types, a substantial share (23%) of farms under investigation shows negative incomes. Based on survey data, two typical farms were established representing standard costs with homogenous assumptions such as identical milk price. The comparison of typical farms covering the full dairy system clearly indicated that crossbred dairy cows outperformed purebreds. In addition, a simulation of a shorter calving interval for both typical farms revealed a substantial positive impact on income for both breed types with more than 30% increase. We conclude that focusing on crossbreds in combination with improved feeding and fertility management offers a more promising strategy for smallholder dairy farms in Southern Malawi than just acquiring high-yielding purebreds.