Over 1 million people use services on UpWork every month, and it attracts more than 100 million job applications per year from over 150 countries worldwide. It is an online platform that connects freelance workers with businesses looking for them.
In this article, we will discuss how UpWork makes its money—what its business model is based on and how they generate revenues.
According to Payscale Research, in 2020, there were about $28 billion earned by freelancing platforms like Upwork. These numbers have increased drastically since then.
The main reason why these numbers keep increasing is because many companies prefer hiring remote employees through such platforms rather than going through recruitment agencies or other traditional methods. This trend continues today as well.
It also helps companies save time and costs when working with multiple vendors simultaneously instead of having to deal with different agents separately throughout the process.
What's interesting here is that most of these platforms do not require any upfront fees from either parties involved. They earn all their income via two types of activities:
1. From paid jobs posted by clients/employers
2. Through charges levied against applicants who accept work offers
Let us now look at both sides of the table to understand what happens behind the scenes while someone completes a task using Upwork.
Most freelancer-based sites charge some sort of fee depending upon the type of service you want done. The amount varies between 10% to 30%. However, Upwork takes no commission whatsoever out of your earnings. In fact, it allows you set your own rate within certain guidelines.
This is something which sets Upwork apart from others. On top of that, if you ever feel dissatisfied with the quality of work provided by one particular vendor, you can always find another vendor without paying the extra fee.
However, those who choose to pay a higher price get access to premium features like unlimited messages support, priority response times, etc., but only those who post high ratings receive these privileges. If you don't mind waiting for your replies, go ahead and ask for whatever you need regardless of the cost.
If nothing else works for you, you could try searching on Google for "freelance" followed by the name of the product or project you're interested in.
As mentioned earlier, Upwork earns its profits from charging employers a flat monthly subscription fee. According to Upwork, it took up to 70 days before anyone started making a profit on Upwork.
They claim that after taking into account marketing expenses, overhead costs, etc., 80 percent of the company's net profit comes from just 20 percent of users. So far, Upwork reports earning around $20 million per month.
Another way to look at it would be that each user pays a small fee (that goes towards operating costs) plus gets charged for usage. For example, let’s say that a client wants a web developer to build a website for his startup. He posts a request for bids on Upwork and selects three developers to shortlist. Let’s assume he chooses to award the contract to Developer A. At first glance, it might seem that Client X is getting great value for money as he doesn't have to incur additional expenses to employ Developer B or C. But things aren't quite as simple as they appear.
Here's where the math comes in:
Client X needs to spend approximately the same amount whether he hires Developer A ($10k), B ($8k), or C ($6k). Therefore, even though Client X saves himself some money upfront, he ends up spending roughly the same amount overall. Moreover, if Developer C performs worse than Developers B and A combined, Client X still ends up paying the same amount.
That being said, there are several scenarios where hiring a single contractor could prove beneficial over outsourcing altogether. Here are few examples:
You may want to start off with a smaller budget and allow yourself enough flexibility to switch contractors whenever necessary.
Your current team members may already know the ins and outs of building websites better than external candidates. You can thus avoid losing valuable expertise if you decide to change providers halfway down the line.
Having fewer contracts on hand means less risk for you and greater stability for the provider. If you're unsure about retaining him, you can simply terminate the relationship without worrying about legal repercussions.
Finally, unlike regular staffing firms, Upwork gives you complete control over your projects. That way, you'll never miss deadlines due to unavailability of resources. Plus, Upwork handles billing and taxes on behalf of you, leaving you free to focus on running your business.
Yes, Upwork does charge a fee to hire. Its exact pricing policy changes from country to country. Some regions impose restrictions on hourly rates, whereas others cap maximum prices.
For instance, in India, Upwork caps hourly payments at INR 80000. Additionally, there are many instances wherein employers pay a flat fee of INR 15000 per completed order.
These policies help protect clients from falling prey to scammers.
To give you an idea, Upwork charges its customers based on what they've agreed to pay. There isn't a fixed formula dictating exactly how much they should pay. However, they do offer tips on how much they should ideally expect to pay for various tasks.
On average, the following amounts apply across the board:
$5-$30 per hour for basic development work.
$15-$100 per hour for intermediate development work.
$50+ per hour for expert development work.
And, yes, Upwork also charges its suppliers. Suppliers usually get paid once they deliver finished products to end buyers.
But wait! Isn't Upwork itself considered a supplier? Then how come it doesn't have to bear any financial burden?
The answer lies in its unique payment model. Unlike many other marketplaces, Upwork receives a portion of its revenues from sellers. As long as you place good orders, Upwork keeps sending you requests for new ideas, projects, etc. And in turn, it shares a slice of its profits with you.
So, if you consider Upwork a supplier, then shouldn't it too share part of its sales with the sellers? Well, that depends entirely on your point of view. To put it simply, Upwork believes that providing a fair compensation plan is essential for attracting talent to its platform.
Now that we've discussed the basics, let's move onto looking at how Upwork generates revenue.
There are five primary ways in which Upwork makes money:
Advertising: Advertising refers to displaying ads on your profile page. The adverts displayed depend on your location and interests.
Revenue Sharing With Sellers: Upwork collects a percentage of the final sale made by sellers.
Billing Clients: When you sign up for Upwork, you agree to provide feedback and testimonials regarding your experiences. By doing so, you create trust among potential clients. Based on this information, buyers can estimate future performance levels. Hence, they can easily determine whether they'd enjoy dealing with a specific seller again next time. Consequently, this increases the number of repeat transactions. Finally, this results in more advertising impressions and ultimately leads to more revenue sharing.
Payments From Buyers: Every successful transaction begins with a buyer posting a job description. Once a prospect finds a suitable candidate, he sends a message asking for proposals. Only then does the discussion begin. After evaluating all responses, he picks the best option. Most often, his choice falls under one of four categories: Accept, Reject, Hold, or Decline.
Based on his preferences, he approves the chosen proposal and settles on a reasonable price.
Afterward, the selected provider submits his invoice along with payment details. Upon approval, Upwork transfers funds directly to the designated bank accounts.
Earnings From All Sources: Apart from the aforementioned sources, Upwork also derives a significant chunk of its annual revenues from referrals. Referrals refer to incoming links to the site from third-party domains. Such visitors tend to browse the catalog further and eventually click on advertisements.
Additionally, Upwork provides its members with tools that enable them to track and manage ongoing projects. One such tool is Invoices. Using this feature, clients can send detailed explanations related to pending payments.
Through this method, buyers can ensure that their invoices meet expectations while keeping communication open.
With millions of active users connected to dozens of industries, Upwork seems like a reliable source of skilled labor.
While it certainly possesses the capability to stay afloat for years to come, it's worth mentioning that Upwork has experienced several security breaches in recent months.
One major incident occurred in May 2021. Hackers managed to steal data belonging to thousands of individual users. Around 500GB of confidential files ended up in the hands of cybercriminals.
Fortunately, none of the stolen records included sensitive customer information. Nonetheless, the event highlighted the vulnerability of digital assets stored on cloud servers.
When it comes to freelance job sites like UpWork, there is no shortage of criticism surrounding how they operate and what kind of payouts jobs offer workers. While some may be justified in these accusations, others are not—and that means we should all have an idea about how exactly this company makes money.
If you're looking for work as a writer or web developer on UpWork (or any other site), knowing how your payment will come through can help you decide whether or not to apply. Let's break down how UpWork generates income so you know where your cash goes when you use their service.
It depends on who you ask. In 2017, UpWork was valued at $30 billion dollars by venture capital firm General Atlantic Partners. But despite being worth billions, UpWork still had a net loss of over $50 million in 2016 alone. The numbers don't lie here either—it seems UpWork is operating without making enough profits to cover costs.
In fact, most companies would consider themselves profitable if they could turn a 10-20% profit margin into actual revenues. So why do UpWork's earnings continue to lag behind? Two reasons stand out here: namely, the cost of recruiting new talent compared to paying existing employees, and the sheer number of users competing for fewer opportunities.
While many people believe that UpWork takes too much cut from each transaction, I think it gets even worse than that. According to UpWork's own estimates, around 60 percent of every hour worked on UpWork ends up going towards administrative tasks instead of getting you paid. That's because UpWork charges more fees for basic services such as searching for jobs, applying to them, etc., which leaves little room for employers to hire multiple skilled individuals to perform the same task. This also means that while you might get hired for a project, you won't necessarily earn anything on it since you'll spend half of your time waiting for approvals or chasing after clients' feedback.
The second reason why UpWork struggles financially is due to low demand among potential customers. For example, let's say you want to build a mobile app but aren't sure whom to approach for assistance. You'd probably go ahead with researching several developers online before reaching out to someone via Twitter or LinkedIn. However, you wouldn't find anyone willing to give you advice unless you've reached out to hundreds of people already.
This lack of interest stems from a general misunderstanding of how UpWork works. Instead of working directly with businesses to provide specialized solutions, UpWork acts as a middleman between two parties. As such, only those interested in hiring a specific skill set can reach out to UpWork. And then, once they've found a match, both sides must agree upon terms for compensation.
With lower demand coupled with high overhead, it becomes clear why UpWork is struggling to stay afloat. It's important to note that UpWork isn't just another website offering gigs for freelancers. Rather, it's a platform designed specifically for professional freelancers to connect with prospective clients.
As mentioned earlier, UpWork serves as a sort of intermediary between two different entities: employers and workers. When a client hires a worker, part of the deal includes handing over 25% of the total fee upfront as "application processing." That way, both parties know beforehand how much they need to invest in order to complete a given task. Once a contract is signed, however, the rest of the payment is split equally between both parties.
Aside from application processing fees, UpWork collects additional fees for things like background checks, identity verification, insurance, etc. These are intended solely for protection purposes and allow clients to feel safe when hiring freelancers across different states. Additionally, UpWork also charges extra fees for things like premium listings, advanced search options, and premium account upgrades.
According to UpWork's official FAQ page, the standard rate for hourly wages offered by freelancing platforms ranges anywhere from 20%-40%. The exact figure varies depending on factors including experience level, location, type of skillset, availability, etc.
But the bottom line is that even though UpWork claims 40% of payments made under contracts are theirs, the truth lies somewhere in the range of 30%-35%, according to various sources. This is mainly because UpWork doesn't charge itself any fees aside from application process fees.
For example, Freelancer offers 15% of the final payout to sellers, meaning that buyers end up paying 85% for completed projects. Likewise, People Per Hour charges a whopping 35% commission, leaving 65% of the pie to the buyer. Other similar websites include Toptal and Elance/Odesk.
On the flip side, Fiverr advertises a flat 5% fee regardless of the amount earned per sale, and 99Designs follows suit by taking 3% of the sales price.
At first glance, you might assume that these percentages seem unfair, especially considering that buyers are footing the bill for higher commissions. After all, shouldn't the seller receive a larger chunk of change rather than having to wait until the end of the project?
However, keep in mind that these figures aren't always static. Depending on the nature of the agreement, certain clauses may stipulate that the buyer pays a particular amount less than the quoted rate. Also, remember that prices fluctuate based on market conditions and negotiations. If a customer wants something done within 24 hours, he or she might expect to shell out a bit more to compensate for delays.
To sum everything up, UpWork earns its money primarily off of application processing fees, plus variable fees charged for premium listing, searches, subscriptions, etc.
Even though UpWork's rates vary slightly from project to project, the average hourly wage for writers on UpWork hovers around $25-$27. Meanwhile, coders typically make closer to $15-$17 per hour.
Of course, this information changes regularly since UpWork is constantly changing their policies and pricing plans. One thing remains consistent, however: the minimum amount required for signing up. On average, this stands at approximately $13.
One major perk of using UpWork is that you can choose how much money you wish to post publicly. By default, you're free to leave your profile open to everyone. Alternatively, you can opt to hide your profile entirely if you prefer. Regardless, none of your personal details, photos, or updates will appear on public pages.
Lastly, UpWork offers three separate subscription packages. They start at $19.99 monthly, followed by $39.99 quarterly, and finally $69.99 annually. Each package allows you to access premium features like unlimited messaging capabilities and priority support, along with discounted signup bonuses.
Interested in learning more? Check out our guide detailing how to negotiate your salary as a freelancer.
Upwork certainly isn't perfect. There have been numerous reports suggesting fraudulent activity on the platform, leading to concerns over safety and security. But the good news is that UpWork maintains a strong reputation for protecting members against scammers, hackers, and fraudsters.
That said, Upwork is far from the only option available today for finding remote work as a freelancer. Take a look at Gigwalk, FlexJobs, We Work Remotely, Fivrr, Fancy Hands, HelloTask, TaskRabbit, Amazon Mechanical Turk, Zirtual, etc., to name a few. Many of these alternatives require you to hand over 100% of your paycheck, whereas UpWork lets you retain 50% of the funds generated.
Ultimately, choosing the right fit boils down to understanding what drives you personally, and what traits you bring to the table. Some people thrive better in teams, while others will find fulfillment collaborating remotely. Whatever your preference, never forget that you deserve fair remuneration for the value you add.
Looking for gig work as a writer or editor? Here are the best places to find writing assignments.
The internet offers infinite possibilities to work from home, and among these many opportunities, there’s a company called Upwork that connects millions of people with jobs worldwide. But how exactly do they manage all this so successfully? And what about their model—how do they turn a profit?
So, how much should you be charging on Upwork if you want to get paid for your services? Is it worth bypassing other sites like Freelancer or Fiverr to use Upwork instead? Let's find out...
According to research conducted by UpWork in 2018, most successful freelancers charge between $20-30 per hour.
In 2019, Upwork also published an article stating that the average hourly rate for freelancing was around $21. This means that even though some might argue against using Upwork because they don't pay enough, the truth is quite opposite since most freelancers earn more than minimum wage through Upwork.
This makes sense as well when looking at Upwork's client base. As mentioned before, its biggest competitors such as Freelancer have a pool of over 2 million users each month while Upwork boasts almost 7 million monthly active members. So, why wouldn't someone choose Upwork over a site where only 10% of them actually end up getting hired?
There are two factors here: reputation and quality. Most employers on Upwork tend to hire better candidates than those who prefer popular platforms like Freelancer—and not just because of the amount of applicants available but mainly due to the fact that professionals working full time on Upwork are usually more experienced.
And then we come to another important point: competition. If you're new to freelance gigs, chances are high that you won't land any work no matter which platform you sign up to. The same goes for established freelancers too. That being said, you will always land projects on Upwork simply because the competition is fierce. In addition to that, Upwork allows companies to filter potential employees based on certain criteria (e.g., location), narrowing down your search field significantly. It really helps narrow down your choices.
Apart from that, Upwork provides several useful tools including job alerts and email updates whenever a project becomes available or a member sends you a message. You'll never miss out on anything again!
Overall, the best way to determine whether you should join Upwork is asking yourself "what kind of experience am I looking for?" If you want to start making decent income without taking a big risk, you probably shouldn't apply until you've had sufficient training. However, if you already know what skills you're passionate about and have lots of knowledge in a specific area, Upwork may be right for you.
But let's move onto something else now. We'll talk about Upworks' model next.
No, Upwork isn't completely free for both parties involved. There are three main ways that Upwork collects money from customers: subscription plans, application fees, and placement fees.
First off, let's look at subscriptions. Many clients often ask freelancers to subscribe to different packages depending on their needs. For example, businesses can choose to purchase a Premium plan ($3+/month) or a Business Plus package ($5+/month). These plans offer extra perks for teams of 5 or more workers, along with additional discounts. A freelancer could receive anywhere between 1x and 3x the usual price, depending on his/her profile.
Next, we discuss application fees. Whenever you create a profile on Upwork, the system requires you to fill in a few fields, including your resume, portfolio, and skill set. While creating your account, you must provide personal information regarding payment methods, social security number, etc. All of this serves as an identity verification process, ensuring safety for both sides.
Lastly, Upwork charges freelancers for every completed task. When you complete a project, a client pays you either via PayPal or Zelle. Payment processing takes place directly within Upwork's app. They also give clients options to request refunds if needed. Clients can also decide to keep payments private—in case they need to hide sensitive data from third parties.
As far as Upwork is concerned, it doesn't participate in collecting taxes or offering insurance coverage.
For freelancers, however, Upwork gives priority access to premium content and exclusive deals. Apart from that, they also include perks like lifetime job history reports, higher rates, and referral bonuses.
Finally, let's talk about Upwork's business model. How exactly does it generate profits? Let's see below...
At present, Upwork processes approximately $1 billion annually. Of this, 40% comes from commissions earned by providers, 30% from subscription plans, 20% from application fees, and the remaining 10% from placement fees.
On top of that, Upwork receives a 15% cut from each commission. After accounting for overhead expenses, marketing costs, and tax liabilities, Upwork ends up keeping 70%. With regards to Upwork's overall earnings, Forbes reported that they made $907 million in 2020 alone.
If you don't want to spend thousands of dollars on Upwork's membership program, you can still enjoy plenty of benefits offered by the service. Here's how:
To begin with, you don't necessarily have to buy a subscription plan. Instead, you can opt for a basic plan that grants you unlimited searches and listings, plus advanced features like CV filters, budget tracking, and instant messaging.
Another option involves choosing a Free Basic Plan. By doing so, you can browse profiles and send messages, but you aren't able to apply for jobs unless you upgrade to a Pro Membership. On the bright side, this cost is pretty affordable compared to others.
You can save money further by opting for a Discounted Monthly Subscription. With this, you can enjoy everything that an Unlimited Member gets, except for some limited tools.
Last but not least, remember that you don't incur any costs if you select Private Messaging as your preferred communication method.
Now that you know everything about Upwork's business model, earning money, and avoiding unnecessary fees, you should definitely consider joining the network. To learn more about becoming a professional on Upwork, check our guide detailing how to build a profitable career on Upwork today.
We hope you found this post helpful! Now go ahead and explore Upwork. Good luck finding your dream gig!
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