Upwork Reboots Pricing Model

cash (2)After a 15-year plus run with a business model based on a flat, “one size fits all” percent-of-spend fee for work performed through its platform, Upwork, currently the world’s largest online staffing provider by spend, is overhauling its pricing. Starting in June, the company will begin charging a fee administered on a sliding scale based on the lifetime earnings of a freelancer and a particular client. Clients will also pay a 2.75% of spend fee, which I’m told is to offset the costs of credit card processing. In short, the company will charge less to freelancers who do more work through its platform and have repeat clients, while freelancers doing a lot of small projects with multiple clients will pay more.

Given that the company is the largest in its space, continues to grow, and has essentially maintained its pricing for its marketplace business over its nearly two-decade history, the move is likely to arouse curiosity and stir conversation among a variety of stakeholders, not the least of whom are the set of freelancers whose fees are about to increase (a few have already colorfully expressed their displeasure with our coverage of this announcement in the Staffing Industry Daily News). The news will also likely be watched closely by the company’s competitors, many of whom have replicated Upwork’s flat fee pricing model, though not always at the same percentage. All this begs the question, why the change in pricing, and what are the implications for the industry?

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Behind the Pricing Change

It doesn’t take a degree in economics to unpack the motivations behind the pricing change. Upwork’s CEO described the move as specifically “designed to reward large, repeat relationships and more fairly cover the costs of small projects, which are more expensive for Upwork to support.” Though many (including the freelancers most directly affected) may argue how “fair” the increase in pricing for small projects is, any traditional staffing firm can attest to the difficulty of profitably staffing small projects. In fact, the firm’s success to date likely has many staffing executives scratching their heads.

Meanwhile, freelancers that do more work on the site will soon get a pay raise. Upwork appears to want more of its freelancers to essentially treat working through the platform as a full-time job; cultivating longer-term relationships with clients and doing repeat business, and the new pricing structure is the mechanism by which they can encourage such behavior. To the extent they are able to accomplish becoming a substitute for more or less full-time work, they will be rewarded. The challenge for the company, and really for any company that creates a two-sided online labor marketplace, will be to generate enough demand to help freelancers actually do that.

Currently, I suspect only a fraction of the firm’s approximately 10 million freelancers are working in a manner in which they’d be able to capitalize on the pricing change. Dividing the firm’s 2015 annual spend (~$1 billion) by $10,000 (the spend point above which fees drop to 5% for a given client) gives approximately 100,000 individuals who could in theory all be making $10,000 in annual freelancer earnings through the site (about 1% of the total). Some superstar freelancers are likely earning much more than $10,000 already, suggesting even fewer individuals would be in the lower fee/$10,000+ earnings club.

The Power Users

In other words, Upwork may — as it boasts in its marketing — have an “Earth sized talent pool,” but the portion of that pool earning more than that $10,000 lifetime threshold is closer to the number of people living in South Bend, Indiana. Upwork states it derives a substantial portion of its revenue from “power users,” or freelancers making more than $10,000, though the company does not break out the percent of business from each. Thus, there is likely a “core” group of freelancers that work quasi-“full time” through Upwork while the vast majority of the workers on the platform do small jobs here or there, or possibly not at all. That said, Upwork, like any two-sided marketplace, is subject to the laws of supply and demand, and the pricing changes may exactly reflect Upwork’s response to the disparity between the number of workers it has on its platform (i.e., supply) and the amount of work available to workers and being performed through the platform (i.e., demand).

Upwork claims it has not been able to sufficiently invest resources into its sub-$500 work/project business as it has not been profitable thus far in facilitating those work arrangements, which I suspect is true. To the extent that raising the fees for this category of work leads to more jobs on the site overall through active investment by the company, it will be a net positive not just for the company, but for workers on the site in aggregate (though individual experiences will no doubt vary), as decreased earnings would be offset by increased opportunity for work. Meanwhile, decreasing the cost for the most engaged freelancers (who allegedly already make up a substantial amount of revenue for the company) and providing a means to do more work through the site could incentivize workers to cultivate more business through the platform, take jobs from competitors, and may help combat an industry-wide problem of workers taking work off the platform with clients after a match has been made (known as “leakage”).

At the end of the day, the pricing may signal a shift in thinking, from “growth at any cost” to “sustainable growth.” Upwork, and the 150+ companies in the same business, are advocating a “new world of work” where a legion of independent workers can more or less freely work when they want for who they want. While the goal is lofty, many forget the “gig economy” is simply a collection of businesses, and the dream quickly turns to shuttered windows if firms cannot find a way to operate in the black. The pricing rework therefore is likely also an effort to create a sustainable — and profitable — business.


The firm claims that it is only as successful as the workers on its site, and though one expects such rosy statements from an executive describing his firm, it is in fact true. Though I imagine Larry Mishel and Robert Reich would likely argue the pricing change underpins the power advantage the firm exercises over workers (even one of the disgruntled commenters on our Daily News coverage acknowledged there aren’t many viable options to find freelance work outside the platform), I would posit that the pricing change is in part an effort to make “freelancing” a viable career option, and, to the extent my hypothesis is correct, the success of the company is tied to the success of its freelancers. If freelancers are unable to find work through the site, or feel they are compensated unfairly, they will take their fortunes elsewhere. They are, after all, freelancers. And as previously mentioned, if the company is not profitable, there won’t be an online marketplace to find work in the first place.

For its part, the company believes it has created a more sustainable business model and aligned the goals of the company with the goals of its freelancers with this new pricing. Describing the long-term impact, CEO Stephane Kasriel argues that while “our original pricing took us to $1 billion in freelancer spend, this is the model that will help us grow to $10 billion.”

Time will tell if he is right.


David Francis

David Francis
David Francis is a senior research analyst with Staffing Industry Analysts He can be reached at dfrancis (at) staffingindustry (dot) com

David Francis

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