The fees on Upwork may make sense for you, when you're just starting out and need clients. But if you build a network and move away from the marketplaces, the financial rewards can be huge.
If you’re a seasoned marketplace freelancer, I don’t need to tell you about the highway robbery built into Upwork & Fiverr’s business models. Most marketplaces charge upwards of 20% of total project fees. That’s $100 on a $500 project. That’s $1,000 on a $5,000 project. And that’s not it - most also charge clients a processing fee of at least 3%, even on any “tips” left for the freelancer. Really?
To be fair, most do have a graduated payment structure. Upwork, for example, only charges 5% once you hit $10,000. But that’s on a per-client basis. And 5% of $10,000 is still $500.
Most marketplace freelancers consider this fee the cost of doing business. Between the new clients they find from the marketplace and the security of the payment functionality on these platforms, they’re willing to pay it.
But the reality is, these fees will kill your business because they’ll inhibit your ability to scale. For many freelancers just starting out, the 6 figure benchmark is their first signal they’re entering professional level freelancer territory. $100,000 worth of Upwork projects at their lowest fee structure (which, let’s be honest, isn’t likely for all of your projects) means you’ve given Upwork $5,000.
What if that $5k grew your business instead? $5k can start a network. It’s a meaningful paid media budget, or website overhaul, or lead generation budget for a new freelancer. A fraction of that money could go towards professional accounting or legal services to formalize your practice. The point is, that’s money that can be used to scale.
Marketplace freelancers are incentivized to charge less for their services. Say you’re an email marketer - one of thousands on a marketplace platform. Many clients looking for email marketing on Upwork just want the work done, and they want it done fast and cheap. Sure, you may be better than the bargain email marketer - but “good enough” is all the majority of Upwork clients are looking for. They just want to create content that gets them to their next revenue target. These are not the kinds of clients you want. And these are not the kinds of freelancers you want to be compared against.
What if, instead of getting your first $100,000 from getting 30 projects with mediocre pay and decent-at-best clients, you landed 15 projects with great pay, for clients who you can build relationships with, who will keep coming back and will refer you to others? This is what scaling looks like. And it can’t be done without building your own network, which requires time, energy, and some budget in the beginning while you build your reputation.
I consider myself to be a scaled sole practitioner, and here’s a (super basic) financial projection for the year based on work won in Q1 2022:
Total projects: 5
Total revenue: $164,000
Total expenses: $4,500
Total free time: LOTS
My co-founder is also a freelancer, and her work is more project-based. I have one main client that I do a substantial amount of ongoing work for, while she has a very specific niche and typically works on multiple projects of a defined duration at a time. Here’s what her projections look like for 2022:
Total projects: 36
Total revenue: $210,000
Total expenses: $7,000
Total free time: way more than she’d have if she worked for someone else, that’s for sure!
Now, some of this work is ongoing, with clients we’ve had for years. We definitely didn’t start out making this kind of money! And neither of us has ever attempted the subcontracting game - that’s next-level scaling right there. But neither she nor I would ever have gotten to a place where we can charge what we do without building our networks and reputation, and having budget left over to put back into the business.
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