How does Upwork make money?

Upwork makes most of its money from service fees paid by freelancers

The nature of work is changing pretty rapidly, thanks, in part, to the rise of the on-demand economy. Companies like Uber and Lyft have battled in court to keep their workers as independent contractors, a move that has not been without its controversies, given that the designation entitles those workers to fewer rights and benefits. 

One of the companies that has benefited most from that shift is freelance marketplace Upwork. The result of a merger between two freelance platforms, oDesk and Elance, in 2013, the company announced this week that it is going planning on going public. It will list on on the Nasdaq Global Market under the ticker symbol UPWK, though the company declined to say how much it plans to raise in its offering.

The company makes its money from two revenue streams. The first is its marketplace, where revenue is generated from its premium offerings, including Upwork Standard and Upwork Enterprise. 

With Upwork Standard, the company generates revenue from both freelancers and clients. 

"Marketplace revenue, which represents the majority of our total revenue, is primarily comprised of the service fees paid by freelancers as a percentage of the total amount that freelancers charge clients for services accessed through our platform. For our Upwork Standard offering, we have a tiered freelancer service fee schedule based on cumulative lifetime billings by the freelancer to each client," the company wrote in its S-1. 

Freelancers on its Upwork Standard offering typically pay the company 20 percent of the first $500, 10 percent for the next $9,500, and then 5 percent  for any amount over $10,000 they bill to each client through the platform. Before June of 2016, the company charged a flat 10 percent fee.

The company charges clients on Upwork Standard a payment processing and administration fee of either 2.75 percent of their client spend or a flat fee of $25 per month for unlimited payment transactions.

In 2017, the $24.5 million that managed services brought in was 12 percent of total revenue. It decreased 5.6 percent from 2016. In the first half of 2018, the $14.5 million was an increase of 25 percent from the same period in 2017. 

Upwork has approximately 375,000 freelancers and 475,000 clients. In the year ending in June, the platform enabled $1.56 billion of gross services volume across two million projects.

Founded in 2005, oDesk was a platform helped companies recruit and manage workers. it had raised over $46 million when it combined with Elance, which had raised nearly $95 million. Since then, the company raised another $30 million in 2014, bringing its total funding to $168.8 million.

(Image source: upwork.com)