News & Analysis

Online marketplace for freelancers Upwork announces new pricing model as it looks to deal with growing competition

- May 4, 2016 3 MIN READ

Upwork, the online marketplace for freelancers, has announced changes to its pricing model as it looks to grow its community in the face of increased competition from the likes of Freelancer. The startup has recognised the previous ‘one size fits all’ model wasn’t ideal for all products and durations and is now moving towards a more segmented pricing approach.

“We’ve build this business over the years but never have really changed pricing in a meaningful way, and it’s really served us well to this point with our pricing having been a flat 10 percent fee,” said Rich Pearson, senior vice president of Upwork.

For freelancers Upwork will introduce a new sliding service fee based on their lifetime billings with each client across all hourly and fixed-price contracts. This means freelancers will pay 20 percent for the first $500 billed to a client across all contracts with that client, and a 10 percent free for total billings with a client between $500 and $10,000. As the relationship between freelancers and businesses increases above $10,000 the service fee drops to five percent to encourage high growth connections.

Thinking in terms of a freelancer, if you’ve worked for a client on a long time basis, paying a 10 percent fee seems rather unfair. With the new segmented pricing model, long term relationships are rewarded.

Along with freelancer fees, there is also a payment processing fee that will be targeted towards clients. This fee will average around 2.75 percent.

To date Upwork has created a global community of 17 million with 12 million freelancers and five million businesses, making the platform an industry leader in the online freelance market.

Over the last 12 months, Upwork reports that Australian businesses have spent nearly US$60 million in hiring freelancers on the platform, an increase of 41 percent year-on-year.

UpworkUpwork will use this new pricing model to guide the future of freelancing as the online job market increases.

Currently Upwork generates over $1 billion for freelancers annually and predicts that figure to jump to $10 billion annually in six years with new features and the change in its pricing model.

“Really we believe this pricing change sets us up, not only Upwork, but the future of freelancing for the next ten years,” said Pearson.

The new pricing model aims to accelerate growth and looks to form larger and longer term relationships with freelancers who can ultimately help businesses expand faster. As a result Upwork looks to see more clients joining the platform and encourage long-term relationships, while rewarding quality freelancers who are able to retain and continue work with businesses.

“One of the reasons we made this change is because we were seeing a develop in front of our eyes. When we first started launching this platform we would see a lot of short-term gig work, but now as more companies are comfortable hiring for longer-term projects, we’ve seen an increased amount of larger projects,” explained Pearson.

In May last year, after much work behind the scenes, Elance-oDesk relaunched as Upwork. The new platform was proposed to allow freelancers and businesses to connect more easily through enhanced matching algorithms. Through the Upwork mobile application both sides of the marketplace can work on the go.

Upwork features include the ability for freelancers to set their availability to ‘Right away,’ ‘Later,’ or ‘Not looking.’

More recently in February this year the platform launched Upwork Pro, a platform for a curated group of freelancers. The new service allows businesses to hire from a quality group of freelancers, allowing larger businesses to find the right person for a specific position.

The change in pricing model and the addition of Upwork Pro shows the company’s efforts to stay ahead of the game and continue to dominate the marketplace. One of their strongest competitors, Australian startup Freelancer, has also been making changes to its business model and has become one of the biggest marketplaces for online work outside of the US.

Late last year Freelancer reported there were now over 100,000 Australian businesses registered on its platform, with almost a quarter of these coming on board in the last 12 months alone.

Freelancer has, of course, also been responsible for supporting Australia’s startup community through hosting conferences and hackathons, having acquired Australia’s biggest tech conference SydStart and rebranding it to StartCon.

Freelancer has positioning itself as a leader in online jobs marketplaces in Australia and also thought leaders in the startup space. In light of this Upwork will need to continually innovate if they wish to dominate the market. With both teams growing internationally it will be interesting to see how they influence and challenge the online freelancer marketplace.

Pearson said Upwork is growing its community as fast as it can and is on track to reach its goals of more high income generation and longer term relationships.

“What this new pricing will allow us to do is to invest further in our business because it will allow us to bring in longer-term clients as well as even invest in shorter-term ones.”

Image: Stephane Kasriel, CEO of Upwork. Source: Supplied.