Upwork Business Model – How does Upwork Make Money

Upwork Global Inc., commonly known as Upwork is an American freelancing platform that connects enterprises with individuals to get their work done. Upwork, which is available on both website and mobile app, does not just help businesses to move ahead by matching them with skilled freelancers but it lets freelancers conduct their small businesses. It is the world’s largest remote talent platform that facilitates jobs in various fields from software development, writing, sales & marketing, accounting, customer service to engineering & architecture, data science & analytics, etc.

More than 5 million businesses trust Upwork and they save millions of dollars by hiring on-demand talent at the best rates. The company has over 1.8 million registered freelancers and individual recruiters and enterprises post millions of jobs on the platform which worth about $1 billion annually.

Curious to know how this giant freelancing platform, Upwork makes money? Then, let’s quickly jump into it. But before that let’s see the short history of Upwork, how it works, and its business model to understand how it makes money. So shall we?

Short History of Upwork

Upwork was founded by Beerud Sheth, Srini Anumolu and Sanjay Noronha in 2015. Although it was founded five years ago, it has its roots in the late 1990s.

Originally Upwork was known as Elance-oDesk as it was formed with the merger of Elance and oDesk. Elance was a small business marketplace that was founded in 1998 by Beerud Sheth and Srini Anumolu in Jersey City. Whereas oDesk was founded in 2003 by Odysseas Tsatalos and Stratis Karamanlakis (who are already friends). In December 2013, the companies announced their merger and named it Elance-oDesk. oDesk was an online marketplace that enables businesses to find, hire and collaborate with the right remote workers. The merger of the two companies resulted in the platform that looks like a newer version of the oDesk platform.

In 2015, the company was finally rebranded as Upwork. Upwork has its headquarters currently in Santa Clara, California, U.S. The company went into public firstly on October 3, 2018.

How does Upwork Work?

Hiring on-demand workers for occasional work is a tough challenge to most enterprises until freelancing platforms like Upwork arrived. Upwork makes businesses get more work done by letting the talented and skilled freelancers on the platform. The company lets its clients (enterprises) shortlist, interview, hire, work, rate and pay the freelancers or freelancing agencies much easier.

Read: LinkedIn Business Model – How LinkedIn Makes Money

It requires the clients to post a job description, and price range they can pay to the candidate. The registered freelancers will have some credits (known as Connects) with which they can bid for jobs. After the hirer finds the right match, he/she can collaborate effectively with the freelancer on an online workspace and get the work done. 

Upwork has multiple features that ease the job of both hirers and freelancers. It has a searchable directory of freelancers based on relevancy, a real-time chat feature, timesheet application to check or track the exact time the freelancers spent on projects.

Upwork allows its clients to pay by the hour or a fixed price. It delivers global payments with Upwork Payment Protection to over 170 countries. Both hirers and freelancers can access the invoice and transaction history.

The company charges a certain percentage as a service fee from freelancers (contractors). The fee it charges depends on the total amount, the lesser the amount, the more commission it takes. Upwork also charges clients in the form a membership fee which you will learn in the below sections.

Read: Canvas Business Model – How Canvas Makes Money

Upwork Business Model

After the two brands, Elance and oDesk started operating under one name, Upwork in 2015, they also launched a new mobile app, improved website performance, and a new real-time chat feature in Upwork. These upgrades resulted in favor of the brand. All these changes were executed under the leadership of Stephane Kasriel, the CEO who was later replaced by Hayden Brown in December 2019.

Consequently, under the leadership of Brown, the company has grown bigger with 1.8 million users as of early 2020. The new CEO has brought many changes such as increased client payment fees and the fee of Connects to deliver the quality of freelancing work and freelancers on the platform. However, the changes resulted in financial gains for the company.

Thus with the revised business model and features on the platform, not only Upwork generates huge revenue. The active freelancers are able to make million-dollar businesses and enterprises are able to pick the best talent at the best costs to get their in-demand work done.

Okay, enough said! Now let’s see how exactly Upwork makes money.

Read: Duolingo Business Model – How Duolingo Makes Money

How does Upwork Make Money?

Upwork generates income from

1. Service fees it costs freelancers and

2. Membership fees from clients

Service Fee

The platform is free to join or post a job. It doesn’t charge either freelancers or enterprises for joining Upwork and this strategy is working well in attracting new users. Also, it helps the supply of both parties to remain balanced and high. However, the company charges its contractors for every payment they receive after finishing the gig.

As said in the above lines, Upwork charges freelancers a percentage from every payment they receive from clients, which it calls service fees. The service fee depends on the total transaction value. So, here is how it bills its contractors.

20% if the total fee is less than $500

10% if the total fee is between $500.01 to $10,000

5% if the total fee is above $10,000.01

In addition to this service fee, Upwork also charges a payment processing and administration fee of 2.75% for every payment they receive.

It is assumed that Upwork makes about 90% of its revenue from the fee it collects from its users.

Membership Fee

Upwork offers membership plans for clients to deliver them tailored services. The plans are intended to let the clients hire better and faster.

There are three membership plans; Basic, Plus, and Business

Basic is free of cost and consists of only essentials to get started, hire, work, and pay.

Plus costs $49.99/month and offers additional features such as dedicated account managers to help clients, project tracking, collaboration tools, featured top rated search results.

The business plan costs $849/month and has everything in Plus. It has some advanced features to get the job done effectively.

The company also charges an additional 3% payment processing fee and a 10% service fee for Business plan members.

So, this is how Upwork makes money through its business plan. Now, let’s see the company’s funding, valuation and revenue information below.

Upwork In Numbers

Upwork is available under Stock symbol UPWK has raised a total funding amount of $168.8 million in 12 funding rounds. The company raised $1.5 billion when it went public first and made $187 million in the process.

Although there was a decrease in revenue when compared to previous financial years. But a recent report stated that there is a 24% increase in sales YoY to $96.7 million. The company also stated that its contractor base in the US has grown to 2 million during the pandemic.

Final Thoughts

So as you can see, this is how the largest freelancing platform that connects millions of freelancers with businesses makes money. The company has been introducing new features and improving the user experience to keep its position in the market. Hope this Upwork business model helps you in making effective business decisions.

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