How to Use Upwork and Its Economic Model



By CapitalThink



November 24, 2023

NOVEMBER 24, 2023


Last updated February 28, 2024

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Upwork is an online freelancing platform that connects businesses seeking freelance talent with independent professionals offering various skills and services.

Founded in 2015 from the merger of Elance and oDesk, Upwork aims to revolutionize how work gets done by enabling companies to build flexible teams with top talent from around the world.

The Upwork Platform

Upwork operates an online marketplace that allows clients to find, hire, work with, and pay freelancers for short-term and longer-term projects. The platform provides tools and services to facilitate the matching of clients and freelancers, communication, collaboration, project management, time tracking, payments, and reviews.

Key features and components of Upwork's platform include:

  • Talent Search - Clients can search Upwork's database of millions of freelancers by skill, location, hourly rate, reviews, and more to find qualified candidates.
  • Profiles - Freelancers create detailed profiles highlighting their skills, experience, education, portfolios, reviews, and more. Clients can browse profiles to evaluate candidates.
  • Job Postings - Clients can post fixed-price and hourly jobs detailing their project needs, required skills, and other information to attract candidates.
  • Bidding and Messaging - Freelancers can submit proposals and bids in response to open jobs. Clients and freelancers can message each other through Upwork.
  • Workrooms - An online workspace for clients to manage projects. Features include file sharing, task assignments, time tracking, feedback, and payments.
  • Milestones - For larger projects, clients can create milestones with multiple payment periods to fund work in stages.
  • Desktop App - An app that lets freelancers track time for hourly jobs, communicate with clients, and get notifications.
  • Mobile App - Allows managing projects and messaging on the go.
  • Payment Processing - Upwork facilitates payments between clients and freelancers for all projects on its platform.
  • Reviews - After project completion, clients and freelancers can leave feedback and star ratings to build reputations.
  • Search Filters - Advanced filters like hourly rate, project length, locations, skill tests, and more help clients narrow candidate searches.
  • Verified Profiles - Upwork verifies freelancer skills, identity, and location to certify trusted talent.

This platform provides the end-to-end infrastructure to discover talent, collaborate effectively, deliver work successfully, and get paid on time.

Economic Model

Upwork generates revenue primarily through service fees charged to both clients and freelancers as a percentage of each transaction on the platform. This fee model allows Upwork to benefit when freelancers earn more.

Here are the key components of Upwork's economic model:

  • Freelancer Service Fee - Upwork charges freelancers a sliding service fee of 5-20% on each transaction, depending on their lifetime billings through Upwork. The fee is deducted automatically from each payment.
  • Client Service Fee - Clients pay Upwork a 2.75% payment processing and administration fee on each transaction, in addition to the freelancer fee.
  • Membership Plans - Upwork offers premium memberships for freelancers that reduce their service fee to 5-10% for higher monthly fees.
  • Connects - Clients purchase Connects (like credits) to send proposals and initiate contracts with freelancers. Each Connect costs $0.15.
  • Withdrawal Fees - Freelancers pay a small fee (around $2) when withdrawing funds from Upwork to their bank account.
  • Rising Talent - For new freelancers, Upwork charges a higher 10-20% service fee that drops down as they gain experience.
  • Enterprise Services - Additional services offered for larger clients with customized plans and pricing.

This model allows Upwork to generate revenue from both parties engaging in a freelancing transaction. The value provided by the platform infrastructure, tools, reach, and trust justify the fees charged for facilitating the relationships and payment exchange.

Upwork takes an additional cut from freelancer earnings but offers the benefit of steady access toclients and project opportunities they may not have found on their own. For clients, the fees provide assurance when working with new freelancers found online.

Benefits for Freelancers

Upwork offers independent freelancers and self-employed professionals a wide range of benefits:

  • Access to Clients Globally - Freelancers can connect with clients around the world without needing to build a local client base.
  • Find Projects Year Round - Steady flow of new projects across diverse sectors and skill sets. Less time prospecting for new work.
  • Supplemental or Full-Time Income - Flexibility to work as much or as little as desired. Ability to make freelancing a career.
  • Work From Anywhere - No geographic limitations. Can work while travelling or from home offices.
  • Test New Services - Low risk way to offer new skills or services and demonstrate abilities to potential long-term clients.
  • Build Reputation - Ratings and reviews on completed projects establish credibility for future opportunities.
  • Track Record of Earnings - Invoices, contracts, and payment history demonstrate freelancing income potential.
  • Payment Protection - Upwork holds payment until work is done and acts as an intermediator in disputes.
  • Education & Support - Resources like guides, webinars, and 24/7 customer assistance to succeed as a freelancer.

The platform allows freelancers to maximize their earning potential, attract clients they may never have found otherwise, and establish their personal brand.

Benefits for Clients

For businesses and clients hiring freelancers, Upwork also provides significant advantages:

  • Immediate Access to Talent - Can quickly start projects with pre-vetted, qualified talent within days.
  • No Geographic Limits - Remove location restrictions when hiring specialized skills.
  • Lower Costs - Pay for only the work needed versus having full-time employees on payroll.
  • Specific Expertise - Get niche skills on niche projects that may be harder to find locally.
  • Scalability - Scale teams up and down as project needs change.
  • Flexibility - Hire for short-term projects or extend long-term without commitment.
  • Comparison Shopping - Evaluate multiple freelancers based on profiles, ratings, and portfolios.
  • Project Management - Use milestones and task tracking to manage remote freelancers seamlessly.
  • Trust & Safety - Freelancer identity verification and payment protection for hiring security.
  • Productivity Focus - Let freelancers focus on the work while Upwork handles payments and support.

By opening access to global talent on-demand, clients can get projects done faster, cheaper, and with less hassle.

Upwork's Impacts

Upwork and the freelance economy are reshaping the future of work in several meaningful ways:

  • Enabling Location-Independent Lifestyles - Professionals can work wherever they want whether that's at home, while traveling, or from remote destinations. This provides more lifestyle flexibility.
  • Creating Income Streams - Workers can earn income through multiple freelance projects and clients versus one traditional job. Moonlighting adds supplemental revenue.
  • Providing Career Options - Freelancing lets people market specialized skill sets and professional experiences suited for independent work.
  • Empowering Underserved Groups - Open access gives opportunities to workers who can't do traditional office jobs due to disabilities, family care, or other circumstances.
  • Building Small Businesses - Freelancing allows entrepreneurially-minded professionals to run their own small agencies and services beyond just their individual contributions.
  • Filling Employment Gaps - Laid off and furloughed workers can continue earning income between traditional jobs. Retirees can stay engaged.
  • Driving Inclusive Growth - Online freelancing creates economic opportunities for skilled workers globally, not just concentrated in large cities.
  • Enabling Remote & Hybrid Work - Experience managing remote freelancers translates into effectively leading more distributed teams within companies.
  • Accelerating Innovation - Independent experts bring fresh perspectives and niche expertise to solving problems and developing new products.

While still an evolving model, freelance marketplaces like Upwork provide more access, more choice, and more possibilities in the labor market.

In summary, Upwork operates an online platform that empowers businesses to connect with qualified, vetted freelancers globally across thousands of skills. Its two-sided economic model charges service fees to both clients and freelancers for facilitating their transactions and relationship, allowing the company to scale with the market. Upwork aims to increase efficiency in the labor market and enable more people to work flexibly while expanding business access to specialized talent on-demand. The impacts on how professionals earn income and companies get work done continue to grow.


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