Upwork Upgrades Itself With Pricing Model for Online Freelancer Marketplace

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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:

Click to enlarge

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.

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Voices (10)

  1. Leila Steward:

    That upgrade cost us a lot. But for the benefits of the website for the freelancers its ok to have its fees increased for better services.

  2. R:

    Upwork’s owner and CEO are mad.

  3. FreelancerMa:

    Andrew, why do you think short-term projects are “never profitable” for the company? And what do you think about the possibility of seeing new WIPs challenge giants like Upwork in the coming years? There is a call for a new platform in light of this new pricing model: https://medium.com/@LevelWorkingField/do-you-like-new-pricing-or-higher-fees-upwork-is-changing-again-and-what-we-can-do-about-it-6c755e245fb7 Thank you.

    1. Andrew Karpie:

      Just to be clear, I said in the comment “I suppose the short projects category was never profitable” was really a speculative statement and determining profitability of the category would involve a cost accounting art. So I don’t know, I supposed, with some rationale. For example: why would the price point on small projects be increased be increased, and the price point on higher value projects be reduced? In any case, it’s all speculation.

      I think challenges have already started, with specialized category platforms perhaps taking some tiny nibbles from some categories on Upwork (again, we don’t know if zero sum or bigger pie). In general, disruptions can occur, but it’s very hard to predict Upwork’s future.

      Thank you for sending the links on Level Working Field. It’s an interesting concept. Keep me posted on how it develops.

  4. Andrew Karpie:

    Thank you, Anna, for your post.

  5. Andrew Karpie:

    Walker, I suppose the short projects category was never profitable. And I believe there are specialized avenues that do and new that will address this market segment. Perhaps be more efficient and be able to support the market segment. At the end of the day, though, the bottom line is… well… the bottom line. Andrew

    1. Walker Rowe:

      But Andrew Odesk merged with Elance to create Upwork. Elance fees were 8.75% and ODesk changed 10%. They would not have merged if eLance was losing money. So this is idea that Upwork is losing money on non computer programming jobs (i.e. with a team of people earning more than $10,000 per client) does not match up with their acquisitions.

      1. Andrew Karpie:

        Hi Walker, I’m not sure I understand your two assertions. But companies often merge/consolidate to achieve economies of scale, and both of the two businesses were consuming large amounts of investment (suggesting what would otherwise be negative cash flow).

  6. Walker Rowe:

    I work as a freelance writer, selling my services on Upwork.

    If what Upwork says it true, then they don’t want writers, translators, and graphic artists on their platform anymore.

    The nature of work for these kind of people is short term projects. For example, if you are writing a book you need a graphic artist to do the cover. If you are a marketing person and need your brochure in Spanish you need a translator. If you need a user manual for your software you need a writer. Once those items are delivered you probably do not need anything else. Even if you develop an ongoing relationship with these persons they are not likely to read $10,000 in billings because these are not 8 hour per day assignments.

    That’s completely different than computing programming tasks where you will hire a freelancers over a few months who works 8 hours per day on that. Writers and translators do not go on your payroll like that.

    Upwork came from Odesk whose focus is programming. Now they find themselves with all kinds of persons working there so they must have found that certain job categories are not profitable anymore. So there is a market there for someone who can take those job categories and profitably work them.

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