Earlier this week, Upwork announced changes to its pricing model, effective June 1. The new pricing model supersedes the model that charged a flat 10% transaction fee on all payments, regardless of payment size. The new pricing, reviewed below, appears to aim at aligning price to cost, encouraging high value freelancers to stick around, and most likely increasing profitability.
The change in pricing has been neatly summarized by Upwork in this before-and-after table:
Clients will be charged a 2.75% transaction fee to cover costs of payment processing, a clear revenue increment.
A sliding transaction fee will be applied against the amount freelancers bill their clients. The sliding scale is based on a freelancer’s lifetime billings for each individual client:
- 20% for the first $500 billed to a client across all contacts with that client
- 10% for total billings with a client between $500.01 and $10,000
- 5% for total billings with a client that exceeds $10,000
This pricing change puts a higher cost burden on small, one-off projects and reduces the transaction cost associated with repetitive client-freelancer relationships that scale in excess of $10,000 cumulative billing across the duration of the relationship.
As mentioned above, the new pricing structure appears to aim at aligning price to cost, encouraging high value freelancers to stick around, and most likely increasing profitability. Stickiness of marketplace platforms have been known to be a problem. And there have been rumors in the industry that Upwork is also aiming for an IPO exit (so increasing profitability couldn’t hurt).
While a flat percentage on billings/payments has been typical among online freelancer marketplaces, other pricing models have appeared.
PeoplePerHour, for example, introduced a sliding scale model in 2012. It also charges a transaction fee for payment processing,
Freelancer.com, now a public company, has a very elaborate pricing model that has reportedly produced relatively high monetization. The company reports a “take rate” (net revenue/gross payment volume) of about 25%. Freelancers are subject to a range of transaction and other fees and can also subscribe to different plan bundles. That freelancers are actually paying for access to the platform is made quite explicit. Clients are also subject to a range of transaction and other fees. There are also other optional fee-based services for both freelancers and clients. Freelancer.com also partitions its freelance project business from its mini-project crowd contest business, which could be viewed as a lower tier with lower value and lower fees. Finally, freelancer.com has always charged a transaction fee for payment processing.
Upwork’s pricing change was perhaps long overdue, but the post-merger integration was all consuming, and it appears that in 2016 the company has started to “take up the business at hand” of steadying the ship and setting sail.
Is there any significance of this pricing change for contingent workforce practitioners? Probably not, in and of itself, since most practitioners have not yet embraced online freelancer marketplaces. But the change can viewed as one of many signs that such businesses are adapting to optimize their business models. From a talent sourcing and procurement standpoint, we should be hoping that some of these businesses “get it right” since they offer sources and digitally intermediated ways of delivering and consuming talent that other traditional suppliers cannot.