How Upwork Makes Money: The Freelance Marketplace's Business Model

Upwork is an online jobs board connecting businesses and freelancers.
Upwork is different from Fiverr in that it posts jobs instead of freelancer profiles.
Upwork makes money by charging service and subscription fees to contractors.

Odysseas Tsatalos and Stratis Karamanlaki founded Upwork in 2003, with headquarters in San Francisco, California. The platform was initially launched in 2013 as a collaboration between oDesk and Elance before rebranding to Upwork in December 2015.

Upwork was listed on the Nasdaq stock exchange in October 2018 under the ticker $UPWK. The company raised $187 million through its IPO. The company received a $1.5 billion valuation, making it part of the Silicon Valley "unicorn club."

This is how Upwork has ridden the surge in demand for remote work to generate revenue.

What does Upwork do?

The company offers freelancers a platform where they can connect with businesses providing jobs on its site. It's the opposite business model to Fiverr, where freelancers post their profiles, and companies can choose to connect with them.

Businesses post their job offer, and freelancers apply for the work. The advertiser looks through the freelancer's offer and the bid they make for the job.

Unfortunately, the model means that freelancers compete with each other to offer the business the lowest price possible. As a result, many freelancers from emerging markets bid lower than those in developed markets. This model means that the company often chooses the lowest bid and suffers when the freelancer delivers substandard work.

Businesses can choose to reject the work and forfeit payment to the freelancer. This strategy results in many freelancers completing the job without getting paid, and there is no way to track if the business uses its content online.

How does Upwork work?

Upwork publishes more than 1.3 million jobs across several categories, including data science, digital marketing, content creation, software engineering, and many more. Freelancers create profiles where they talk about their work history and the hourly rate they charge for their services.

The freelancer bids on the work, competing with other users for the job. Upwork tracks freelancers' data points like the hours they work on the platform. Upwork runs a model that discourages users from negotiating outside of the platform. By bidding on jobs within its site, the freelancer has protection from the business failing to pay them after they complete the work.

After accepting the bid, the freelancer and the business connect through the platform to discuss project details and manage the delivery process. Parties send and receive files, share their feedback in real-time, and manage projects.

How Upwork makes money

Upwork makes money by charging subscriptions and fees for its services to businesses using the platform. Freelancers must also pay for additional client connections. Let's look at the model in detail.

Service fees

The bulk of Upwork's earnings come from charging service fees. Upwork charges a percentage fee for facilitating transactions, ranging from 5% to 20%, depending on the amount of billing history they have with clients and the subscription plan they choose.

Upwork doesn't charge for listing jobs on its site. As a result, it attracts volume from the market, ensuring the platform has liquidity. Upwork also charges fees for handling payments, and it charges an administration fee of 3% to each transaction, paid by the advertising business, not the freelancer.

Subscriptions

Upwork also charges businesses a subscription fee to access its platform. Upwork states this model helps it attract better-quality freelancers, allowing businesses to hire better candidates.

However, according to users, the site is more of a "lowest bidder gets the work" model, resulting in poor quality hires and weak work from freelancers. As a result, it causes a lot of distress for freelancers with better skillsets than those in emerging markets, forcing them out of work.

Clients can choose between two subscription plans, namely Upwork Plus and Upwork Business. The Plus subscription costs $49.99 per month, and the Business subscription costs $849 per month. Business plans get better rates, with Upwork charging a 3% payment processing fee and a 10% service fee.

Future growth engine

Upwork continues to grow through its strategy of providing work to many countries throughout the globe. It continues to expand its international footprint, attracting more freelancers and businesses to its platform.