Upwork raised its fees, and here’s what you can learn from it

UpworkIf you’re looking for a slam on bidding sites or outsourcing services, you’re not going to find it here. No, this is about the news that Upwork raised the fees it charges freelancers from 10% to 20% on projects of $500 or less and created a sliding fee scale based on freelancers’ lifetime billings. (The fees drop to 10% on projects of $500.01-$10,000, and 5% above that.) My interaction with Upwork, formerly Elance-oDesk, is limited to a strange experience with hiring a freelancer whose freelance rates were so low they made me question her talent.

So, here’s the part where you may think, “OMG, Dr. Freelance has lost his mind!”…as if you didn’t already think that when I pulled my April Fool’s prank about quitting freelancing.

I believe Upwork is making a smart move.

Why? The company claims to have more than 10 million registered freelancers. You can bet they exist on a bell curve from less talented to extraordinarily talented, and unprofitable to highly profitable. Same on the client side, where they have more than 4 million registered. Upwork isn’t a charity. Every user soaks up bandwidth, storage, and other resources. They want fewer freelancers and clients on the left end of the curve and more on the right. Changing the fee structure is the most effective way to accomplish that. Given that Freelancer.com went public and just had a record quarter, I won’t be surprised to hear Upwork announce an IPO of its own at some point.

Sure, they’re taking a PR hit from the crowd who are complaining that it’s unfair that Upwork raised their fees. Behind the closed doors of the board room, I’m guessing the CFO is thrilled to have them leave.

Update 5-11: My colleague Lea Popielinski informs me that this change has been a while in the making. Check out her post, “A Reply to an Elance Survey and What I Learned About Freelancing,” which includes some valuable insights on why the new fee structure isn’t in the best interest of many freelancers.

How the Upwork Fee Increase Applies to Your Freelance Business

Depending where you are in your freelance career, your client base probably has several bell curves: project quality, client relationship quality, and profitability. The key is to optimize them. That means:

  • Keeping your best and most profitable clients happy, so they want to stick around.
  • Unloading clients who aren’t profitable or have you reaching for the Tums.
  • Discouraging low-ballers from being interested in your services.

Your fee structure isn’t the only way to manage those issues, but it’s a darn good one. A pain-in-the-butt client might be worth it if the rate is high enough, a loyal client may warrant a more favorable rate on certain jobs, a prospective client with a cat-food budget deserves nothing whatsoever, and so on.

Important! I am not recommending that you use outsourcing services in your freelance business mix, nor am I suggesting that you shouldn’t. That’s your call. All I can say is my business model doesn’t include bidding against other people for work. I don’t believe that a fee of any kind is worth what I’d have to sacrifice in the bargain, especially having a third party “own” my relationship with a client. YMMV.

Above all, there are far better ways to get high-paying freelance jobs if you’re willing to put in the work. And if you’re interested in doing a better job of pricing your services—and raising your own rates—check out the original Dr. Freelance guide: The Science, Art and Voodoo of Freelance Pricing and Getting Paid.

In the comments: Do you have experience using Upwork? Does the fact that Upwork raised its fees change your incentive to use them?

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Comments

  1. says

    I view it as a good thing, too. Those fees should be incentive for freelancers to get more proactive in their client search.

    And as you say, it’s a good reminder to review the clients you have, adjust your own fees, and take the work you want to and are paid well to do.

    The bidding for jobs thing — how can that benefit anyone? I never understood how taking less than you’re worth is a good “in” with a client. I think some writers think it’s a stepping stone to better things. That client is never paying you more — never. You’ve already settled for bargain-basement rates. Why would anyone think you’re worth more if you don’t assert it at the outset?

    Plus, clients are choosing from writers who are, quite frankly, willing to cut corners and harm their own careers to get the gig. That doesn’t bode well for how professionally these same writers will behave when working with a client or interviewing VIPs.

    Just my two cents. Then again, you already know my thoughts on this! 🙂

    • says

      Yes, I think we’re pretty simpatico on the topic. I am as competitive as heck, but I have no desire to compete in a race to the bottom. It’ll be interesting to see whether this gambit works for them, especially in light of LinkedIn launching ProFinder…

  2. says

    I don’t use bidding sites because (a) I find clients, or they find me, through ways that are more profitable for me and yield a better-qualified freelancer for them and (b) I’ve never understood the value of bidding for work, because it always means lowering fees and being chosen based on being the cheapest freelancer rather than the best one for a given job or client. Even if I were just starting out, I’d avoid the bidding sites.

    I’m glad that Upwork has upped its fees, but I still don’t see it as something I need – and I feel lucky to be able to say that.

    • says

      I think you’re misunderstanding what they actually did, Ruth–they increased the USER fees, not the fees freelancers get. So it’s actually worse! My wording wasn’t 100% clear, so I’ve added a phrase to say “the fees it charges freelancers.”

      As far as avoiding bidding sites, I totally agree.

  3. Richard Adin says

    I’ve never used the site, I don’t bid against myself (which is what bidding against others is), and — most importantly — I never knowingly accept work that will pay less than my required effective hourly rate (rEHR).

    It is freelancer ignorance of this last item — the rEHR — that lets bidding sites succeed and as a result of their success, be a major factor in depressing freelancer fees. What sense does it make to bid less than enough to make you a profit? Yet the bidding sites rely on the willing ignorance of freelancers and their competition to push pricing downward.

    My most favorite word as a freelancer is no, as in “No, I will not accept your project because it does not pay enough.” Saying no empowers me.

    • says

      Well stated, Rich. It’s absolutely essential to know your line between profitable and unprofitable, and stay above it. Thanks for commenting!

  4. says

    I’m with Ruth – we usually agree, and with Richard. Back in the day I used Guru and landed one or two clients, but then the prices started to drop… so I dropped out. Marketing, as Lori says, is the skill freelance writers should learn.

    • says

      Thanks for commenting, Anne. I think I signed up for a Guru account back in the early days, but it became quickly apparent it didn’t fit my business model or mindset–any more than UpWork-Elance-oDesk and any other bidding site you can name. If someone chooses to go that route, that’s their business, not mine!

  5. Tracy says

    I use upwork and guru and I may not continue with upwork after this fee hike. I think they are making a big mistake and will lose freelancers at an alarming rate. Many may stay registered because they give you a hassle when you try to close your account, but I bet they won’t be there to bid on the jobs. Their business is going down, in my opinion.

  6. says

    I appreciate you taking the time to share your experience, Tracy–thanks! Interesting that it’s probably easier to stay dormant than get out of the system.

  7. Max Juhasz says

    So I’m still confused about this because I have a client who hired me and prefers to do all of this payments and billing through Upwork. So I signed up.

    I get an hourly rate to work very part time on some of the projects he gives me, which are pretty regular.

    Does this mean that I will now be paying 20% instead of 10% to Upwork for this?

    If so then I am going to have to discuss this with my client, because that is a HUGE hike.