The State of the freelancing Economy Globally: The Gig Platform, Workers, and the odd Picture
A Freelancer's Nightmare: On freelancing, fees, and the greed of service providers.
The gig economy has grown greatly over the last decade and is expected to grow even more. However, freelancing websites have also raised their fees over that time. Is this due to better services, and are the main players worth what they charge?
Most freelancing these days happens through the Internet. Having access to customers from the whole world in the palm of our hands has inevitably changed our economy, giving many people a chance to try working on their own. People who live in smaller towns and might otherwise have been unable to freelance have found themselves able to try.
While some people simply offer their services through Internet ads, most of the gig economy happens through websites. Specifically, through freelancing websites offering inverse classifieds.
In these sites, customers post information on jobs they need done, and the abilities these require. Prospective workers browse through the tasks and sign up as candidates to perform them. The customer then reviews the applications and chooses one or more workers for the task. Once tasks are complete, the customer pays the worker through the site and leaves a review on his profile.
The benefits of these sites are big. First, they offer a centralized platform for freelancers to look for work. But more importantly, these sites have systems in place that assure freelancers will get paid and customers won’t get scammed. The main reason people hire or offer their services through these sites as opposed to, for example, Craigslist, is safety.
However, these sites aren’t without downsides. Useful as they are, there’s a problem many freelancers and customers face when using them: hefty fees.
Money is the problem
Classifieds sites have always charged fees, just as newspapers did before them. However, back when the gig economy was getting started, sites like RentACoder would charge much less than now. Market growth has not only led to increased revenue, but also increased fees for both sides of the economy.
Back in 2008, RentACoder.com was one of the market leaders. Its business method was simple: Coders paid 12.5 to 15% of their earnings to the site. Customers paid nothing. No hidden fees whatsoever.
Today, things have changed. The three main websites for freelancing are Upwork, Fiverr, and Freelancer. All three of them get a much bigger cut of the pie than a decade ago, both directly and indirectly. Let’s take a look at all three of them.
Freelancer, a confusing system where money grabbing is king
Freelancer.com, which absorbed RentACoder (or, more specifically, vWorker,) is the current market leader. However, it also boasts a confusing system designed to obscure just how much they’re taking for each job. So let us explain it to you.
As per their terms and conditions, the site takes 10% of any contracts a worker is awarded. This makes the site look much better and more convenient than RentACoder… until you read the fine print.
In truth, Freelancer.com holds a payment system so complicated it’s impossible to know at first just how much. First, they charge their 10% cut as soon as a project is awarded – effectively charging the worker to work. You need money to make money on Freelancer.
Then there’s the convoluted system. If you’re part of their “Preferred Freelancer Program,” which, according to them, boasts many more projects, costs go up. The website states the program is free, but the fine print says otherwise.
Preferred Freelancers pay 15% of their project amounts. Never mind that they’re supposed to be better than average, as the word “Preferred” seems to imply. Here it only means that you get the honor of paying more to be able to access more projects. And did we mention this program requires a $10 membership for you to be eligible?
Some people might not find this all that bad. Fifteen percent was the standard a decade ago, and while paying upfront isn’t great, some people might not mind. Giving members an edge on projects might work and help weed out scammers. But there are other details around the membership programs to take to account.
Basically, the free membership gives you access only to a very limited amount of tools. And a very limited number of bids per month you can make on projects. Bids refers to applying for a project, independently of whether you get hired or not.
Unless you have a truly amazing profile, chances are you won’t get hired on most of your bids. Bids replenish over time, but slowly enough that a free worker can only bid about once every four days. Which means a paid membership is practically mandatory.
While most people might think this system should net Freelancer enough money, that’s not all. Freelancers also get the chance to pay for their bids to be highlighted ($1 for bid) to get noticed. Also, they can “sponsor” their bids to move them to the top of the list. At the tune of $5-$20 per sponsored bid. Nonrefundable.
There’s more. Some projects might require that the freelancer have a certification awarded by the site. These certifications require that you take an exam, and said exam can cost up to $15 to take.
This is the situation for workers. There are more details, like their contests system, which gives workers the chance to work for no payment, but those are an entirely separate matter. For customers, the situation isn't much better.
The same membership system applies; with more perks the more you pay each month. Also, while posting projects is free, hiring people isn’t. You have to pay a 3% of the final bid and, if the project is fixed-price, this is charged upfront.
Then there’s a long list of “project upgrades,” ranging from highlights to actual features a customer might need. In the end, what’s advertised as free is actually paid for.
For both user types, there are also transaction fees if you use anything other than local bank deposit. And if your project goes into arbitration, you have to pay up to 5% of the project cost upfront. This one charge is refunded if you win, but not if you lose.
As if all of this wasn't enough, there’s an interesting line at the end of their terms, which states:
“User Accounts that have not logged in for six months will incur a maintenance fee of up to $10.00 USD per month until either the account is terminated or reactivated for storage, bandwidth, support and management costs of providing hosting of the user's profile, portfolio storage, listing in directories, provision of the HireMe service, file storage and message storage. These fees will be refunded upon request by users on subsequent reactivation.”
If you sign up and stop using the site for a while, they might charge to reactivate your profile. Which means you’ll get to pay so they can keep charging you for about anything they can.
Upwork, a clearer, yet still somewhat expensive, system
Upwork, previously called Odesk, is another of the market leaders. It came to prominence partly thanks to their hourly payment system, which was unique to them at the time. It used to charge a flat 10% rate, but in 2016 it changed to a tiered system.
It could be called obscure, although it’s nowhere near as bad as that of Freelancer. For workers, Upwork charges between 5 and 20% of their earnings. Unlike with Freelancer, this amount is discounted from said earnings, not paid up front. This cut follows a simple rule: If the client has paid you less than $500 lifetime, Upwork takes 20%. If the amount is between $500 and $10000, they take 10%. If they have paid you over $10000, the fee goes down to 5%.
This might look decent, but most freelancers won’t really make that much from a client. Most work relationships for freelancers are one-off, so freelancers only really get to pay 10% on a handful of projects. As for 5%, the amount of freelancers making over $10000 from a client is so small it might as well not exist. The bottom line here is, Upwork takes a 20% cut from the vast majority of contracts.
Just as with Freelancer, Upwork also has a subscription model for workers. Unlike Freelancer, they keep it hidden from view.
The model is, still, simpler: Free workers get 60 connects (that’s roughly 30 bids) per month. Connects reset once a month, at a set date. Plus workers pay $10/month and get 70 connects per month (that’s only 5 extra bids) and… the chance to pay for extra connects, at $1/connect. Their connects also rollover to the next month, until they have 140, for what that might be worth.
The only feature of Upwork’s Plus plan that might be worth it is the ability to see other people’s bids. That information might allow a freelancer to place a better bid, which is important in race-to-the-bottom markets such as these. Still, it’s something most workers can go without, so an Upwork subscription isn’t necessary. They take the same cut from your earnings regardless of subscription status.
There are no hidden charges except for a $2 fee each time you withdraw your money. You can program for these payments to happen every month, or once your earnings reach a certain threshold.
For customers it’s a bit more complicated. Upwork also offers a subscription system for customers, and how much they pay depends on it. For free members, Upwork charges a 2.75% processing fee for each payment.
Their subscriptions for customers also depend on how much use a customer gives the site. Only mid-to-large companies will want a subscription, with individuals and smaller companies better off with free accounts. Upwork Pro fees are hefty, but small clients aren’t expected to subscribe. It is very clearly geared towards established companies, not occasional clients. The Enterprise package doesn’t even have a listed price, but it’s only supposed to be used by large companies.
All in all, Upwork offers a much fairer and transparent system than Freelancer. There are no hidden fees or optional-yet-required “complementary” services. Only the most successful workers and customers on the platform will ever want a subscription. Even then, the subscription model for workers is hardly expensive. Just don't go in expecting to ever pay a 5% fee, since it’s not a common occurrence.
Fiverr, the smaller player
Unlike Upwork and Freelancer, which have been around for long, Fiverr is a relatively new player in the market. It is also a very opaque one, with information often hidden or simply not shown.
While Freelancer and Upwork have clients post asking for workers, Fiverr works the opposite way. Workers create their profiles and then create “gigs” with prices ranging from $5 to $995. These gigs are shown on the site, and interested parties can contact or outright hire the freelancer.
Just like Upwork, Fiverr charges 20% of a freelancer’s earnings. This percentage doesn’t change based on time or earnings. Other than that, freelancers don’t incur any hidden payments, nor does the site offer any paid advantages. It’s all up to the freelancer, their prices, and their ability to market themselves.
For customers, Fiverr charges $2 per gig they order costing up to $40. For gigs over $40, they charge 5% of the gig price. Just as with workers, there are no extra hidden fees.
The main downside of Fiverr is that the site is geared towards smaller, quick tasks. While one could complete big projects through Fiverr, the system works with set pricing for specific gigs. There isn’t a lot of space for haggling or customization. The market is more suited for selling standardized services than for gigs where details matter a lot.
The Bottom Line
Freelancing is expensive. Some places take smaller cuts, but in general sites take hefty cuts for services that are often not that great. They offer an environment you can trust, but the service is mostly automated. A $200 contract doesn’t cost Upwork much more than a $20 one, but they charge a much higher fee for the former.
Some solutions have been proposed to solve this issue. One of them is moving to the blockchain and using cryptocurrencies as the base. While crypto transactions have fees, just like any electronic transaction, they are generally much smaller.
No blockchain system will ever take a 20% cut on a transaction, nor should it ever. Sites like Blocklancer work on Ethereum and only take a 3% cut. As cryptocurrency use grows, such offers will doubtless be tempting to freelancers and clients wanting more bang for their buck.
Still, whether said crypto-based sites will take off and become big players or not is still unknown. For now, the freelancing and gig economies are tied to the current model, with all of its downsides. The said downsides haven’t kept people from making a living from these sites, sometimes exclusively, but there’s always the bitter taste of knowing things could get better. After all, many of these sites charge a lot for very small services.
Perhaps in time fairer, more transparent players will enter the field. The rise of blockchain certainly seems to be the ray of light at the end of the tunnel.