How does Upwork make money | Business Model

With the digital culture at its peak and if recent trends are to continue in the longer term, the future of freelancing looks vibrant. More and more people are becoming their bosses and are choosing to work according to their preferences – What they want, when they want, where they want and above all what is the choice of their work. 

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Independent talent is an increasingly critical and expanding segment of the global workforce. Even more prominent and successful organizations are now looking for freelancers due to the benefits of a vast and varied talent pool and cost-effective and flexible solutions. Freelancers are proving to be the game-changers in today’s world.

Upwork, formerly Elance-oDesk, is an American freelancing platform. In 2015, the Elance-oDesk merger was rebranded as Upwork and the company’s full name is now Upwork Global Inc. Upwork is currently based in Santa Clara and San Francisco, California. With a presence in 180+ countries and clients from 30% of 100 Fortune companies, Upwork is clearly making a mark in the world of freelancing.

The key differentiator in Upwork’s business model and growth driver is Upwork’s track record of successfully enabling its users to connect at a large scale. This world’s largest work marketplace benefits from network effects that drive growth in the number of clients posting the job and the number of freelancers seeking work resulting in long-term and recurring users. 

Upwork’s Business Model

Customer Segments

• Freelancers who offer their skillsets
• Clients who hire freelancers

Freelancers are users who advertise and provide services to clients through Upwork’s marketplace, and Clients are users who work with freelancers through this marketplace.

Freelancers have the benefits of powerful marketing channel, access to quality clients, secure and timely payments, freedom to run own business with flexible work schedules and remote locations, and real-time visibility into high demand opportunities and which can be focused on developing those skills sets.

On the other end, clients get fast, secure, and efficient access to high-quality talent for 10000+ skills across 90+ categories with a direct-to-talent approach. Upwork offers a direct-to-talent approach as an alternative to traditional intermediaries such as staffing firms, recruiters, and agencies by providing high-quality independent talent and features that help build trusted relationships and instill trust in remote work, including the ability to engage freelancers as either independent contractors or as employees of third-party staffing providers

Upwork also allows the clients to streamline workflows, such as talent sourcing and contract. It also enables essential functionality for remote engagements with freelancers, including communication and collaboration, time tracking, invoicing, and payment.

You see, it’s a win-win for everyone.

Range of Products and Serices

Upwork Basic

• Access to independent talent with verified work history and client feedback
• Ability to match with the right freelancers and built-in collaboration features instantly.

Upwork Plus    

• It is designed for teams looking to stand out to quality talent and scale hiring quickly.
• In addition to all the features of Upwork Basic, Upwork Plus clients can access personalized assistance, whether strategic or job-specific
• They also perk such as verified clients’ badges & Highlighted job Posts.

Upwork Enterprise

• It is designed for larger clients.
• In addition to the benefits of Upwork Plus, it enables Enterprise Clients to consolidated billing and monthly invoicing, a dedicated team of advisors, detailed reporting with company insights for fast and successful hiring, and the opportunity for clients to onboard pre-existing independent talent onto their work marketplace. 
• Upwork Enterprise also offers additional product features, premium access to top freelancers, professional services, and payment terms flexibility. 
• Additionally, through their enterprise compliance offering, clients can engage in determining whether a freelancer should be classified as an employee or an independent contractor based on the scope of services agreed between the client and freelancer.

Upwork Payroll

• This was one of the premium offerings available to clients when they chose to work with freelancers; they engage through Upwork as employees.
• The clients have access to third-party staffing providers to employ their workers to meet their talent needs.

Managed Services Offering

• Freelancers are engaged directly or as employees of third-party staffing providers to perform services for clients on our behalf, directly invoice the client, and assume responsibility for work performed.

Escrow Services

They are licensed as an internet escrow agent by the California Department of Financial Protection and Innovation, which we refer to as the DFPI. Pursuant to applicable regulations, funds kept on hold on behalf of users are held in an escrow account and are released only according to escrow instructions agreed upon by users. 

• For Fixed price contracts, the funds that clients deposit are held in an escrow account in whole or by milestone before the freelancer starts to work, which are released on completion of the project or a milestone.
• For hourly contracts, the client receives a weekly invoice on Sunday, at which point funds against that invoice are placed in escrow. Few days are given to the client for review, after which the funds are released.

Upwork operates the world’s most significant work marketplace that links businesses with independent talent, measured by Gross Service Volume – GSV. GSV represents the total amount that clients spend on both marketplace offerings and managed services offering and additional fees they charge to both clients and freelancers for other services.

Of the $2.5B of GSV enabled on its work marketplace in 2020, approximately 25% was generated from U.S. freelancers, the largest freelancer geography, as measured by GSV, in each of 2020, 2019, and 2018, while freelancers in India and the Philippines remained next largest freelancer geographies in all three years.

Approximately 67% of GSV in 2020 was generated from U.S. clients, compared to approximately 68% and 66% of GSV in 2019 and 2018, respectively, with clients in no other country representing more than 10% of our GSV in any year.

Competitive Advantages

The market segment for freelancers and the clients that engage them is highly competitive, rapidly evolving, fragmented, and subject to changing technology, shifting needs, and frequent introductions of new competitors as well as new products and services. But Upwork has been successfully able to differentiate itself using the below levers:

• Trusted Work Marketplace: Upwork provides clients with tools to validate work performed by freelancers and to provide both public and private feedback once the work is completed. Its feedback system enables freelancers to build their business reputation by establishing long-term credibility with project review and verified client feedbacks.

• Robust Functionality: Upwork’s marketplace includes a proposal tracking system, search engine and collaboration functionality, artificial intelligence-driven talent matching and proposal ranking capabilities, time tracking and invoicing systems, and payments services. The robust functionality enables freelancers to more easily run their businesses and clients to find and work with high quality talent on a global scale.

• Valuable Database: Upwork’s proprietary database maintains detailed and dynamic information, including skills provided by freelancers, feedback, and success indicators of freelancers and clients transacting on our work marketplace. Database enables Upwork to provide a trusted, convenient, and effective experience for both new and existing users and enables clients to better connect with available independent talent for their projects.

How does Upwork make money? What is Upwork’s Revenue Model?

Upwork generated revenue of ~$373 Mn in 2020 with a growth of 24% from 2019. The revenue model of Upwork is based on charging a fee for every successful job the company promotes on its platform. Upwork generates its revenue through charging both the clients as well as freelance professionals. However, the models for both these segments are different. 

Freelancers –

• Upwork charges the Services Fees from the freelancers on the basis of the client categorization.
• Contract with Non-Enterprise Client – A freelancer is charged a sliding fee based on lifetime billings with each Non-Enterprise Client. Service fees are the same whether the contracts are hourly, fixed-price, or projects on Project Catalogue.

a) Earnings upto $500 – 20%

b) Earnings from $500.01 to $10,000 – 10%

c) Earnings above $10,000 – 5%

• Contract with Enterprise Clients – These sliding fees don’t apply to contracts with Enterprise clients. This is because Upwork negotiates individual contracts with those companies on a case-by-case basis. Enterprise contracts have a flat 10% service fee. A badge on their client profiles designates enterprise clients.
• Purchase of Connects – A virtual token for freelancers to bid projects on Upwork Platform

Clients 

• A monthly subscription fee of $ 49.99/month for Upwork Plus clients
• Upwork Enterprise Clients offer customized pricing depending on the level of the service that will be provided.
• For Upwork Payroll services, 23% of the employee pay is divided for fees (10% Upwork + 13% payrolling costs)
• All Clients are charged a flat fee of 3% on all payments. These fees go towards payments processing and administration costs.
• The fees are calculated based on the billing method and shown separately on transaction history and payment receipt. 

Going Forward

As we deep dive into the digital age and how the pandemic has changed businesses, many companies and organizations prefer remote working. Freelancers are ahead of this curve; with companies around the globe are digitizing many of their functions and extending their outreach through online platforms, the possibility for an even bigger freelance market is certainly on the horizon.

In such a scenario, the business model of a talent marketplace like Upwork plays a crucial role in helping businesses move forward with the required workforce and talent anywhere across the world. 

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