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Don't try to do the numbers math, it won't work.

taustinray
Community Guru

So there seems to be a lot of people throwing numbers out about Upwork and all these changes. Some are saying Upwork is just milking the money, others defend Upworks statement of small jobs costs them money instead of making money.

 

The Numbers

The numbers you see advertised by Upwrk, 14M+ Freelancers, 10M+ Companys, 500M+ in revenue posted. You can just ignore those. They mean nothing except to look good on the investors reports and to make them see big. The reality is while there may be 14M+ registered freelancers and 10M+ for companys, those aren't real figures. The real figures are how many of those registered users are actually _using_ the plaform consitently and constantly. So let's make it simple and say 10%. Now that's 1.4M active freelancers and 1M active companys. This is where the numbers count. What percetange of 1.4M is bidding on one-time contracts that don't go over $500? How many of those get long-term contracts that take a long time to get to $500? That also applies the other way, what are those 1M clients doing?

 

As for the Job Revenue posted, that's just it. It's *POSTED*. That means that clients have listed jobs that equal that 500M+ (or whatever they say). Again, that number is utterly pointless. The real numbers are based on how many of those posted jobs actually generates revenue. Clients who post jobs, regardless of the cost, and never hire or circumvent Upwork for payment don't actually contribute any revenue. So end the end, those numbers are utterly meaningless and pointless.

 

I've had these conversations where I was ready to boot the customer and the response was "But they are a $1,000/month customer." So? The reason they were getting the boot was that they hadn't paid a bill in 3 months. Again, that $1,000/month is only good to me if they actually pay it. What it looks like on paper means nothing.

 

Little Real World Experience

Now I want to touch base on how the small jobs here don't make Upwork any money and apparently not for Elance either. I'm tending to believe that's not true and if it is true (as I've stated before) they didn't make money because of Upwork's structuring. So let's take a look at how the small person actually does make you money.

 

I used to provide Residential VoIP services with a $9.99/month plan. Let's take a look at that.

  • COSTS - Upfront: There were costs needed right away. DID, Usage, E911, Caller ID Lookups, Caller ID Storage and the device. These are all costs that are incurred even before that customer is on the platform.
  • COSTS - Distrubuted: Media/SIP/Voicemail servers, Carrier Interconnects, Proxy servers, Data Center, Office, Phone System, Backend (Billing, Support, Sales, etc), B/OSS platforms, etc.
  • COSTS - User: Sales, Support, Care.

Now there are certain costs that can only be applied to an invidual user while there are distrubuted costs that ALL users incur. The Resi users used the exact same backend, network, servers, etc as the business customers. So those costs are actually brought down by these little accounts. In fact these little accounts (about 5,000 of them) made up almost $600K of out anual revenue in which we saw about 60% margin on. Why? Because we had a system in place that made it so they were and that includes the CS side of things. Because again, it's not the amount of CS issues that are raised (though it should be something looked a if it's high) but it's how much *time* is taken. 

 

The general rule is a user will take about 1 hour of support time PER MONTH. The follow up to that rule is not every user will use all that support time or any of it while there will be those that will and propbably more. While you need to understand how much support the avg. user will take up, support is a distrubuted cost. So in our case we looked at it overall. On average our user base was about 25,000 users so even at 1 hour per user we're saying our user base will use 25,000 hours of support each month. Which in itself is outrageous because that's just not going to happen.

 

The reality is that a fraction of those users will actually require support, those that do usually don't take up that much of actual support time. Out of those 25,000 users there were about 0.002% that were chronic. So about 125 users used up our support 80% of the time (regardless of revenue). We saw about 175 hours per month average in support hours. Because again, it's not how many issues it's the time spent on the issues. 

 

Math: 175 hours x 40 (per hour rate) = $7,000 / 25,000 user = $0.28/per user in support costs.

 

If you have a well thought out support system, a decently solid platform and network the more customers you add doesn't actually mean the more support you will have. Even when/if you increase your customer base the goal is to keep the support hours at a minimum. So if you increase your customer base and revenue but can keep the support hours from increase too much the actual cost of support per user will not change or flux that much. In some cases it might even go down.

 

Oh and this ITSP I was working for there were three of us, the two owners and myself. For the most part the owners were never around so I was left to not only manage the day to day of the company, I *WAS* the support team, the sales team, the everything team. We managed to maintain well over $2.5M annually with a 55 point margin. We ended up being bought by one of the three big Telecom's here so we could expand their VoIP platform and apply our support structure to theirs because they were bleeding money in that area.

 

So for Upwork to say that Freelancers that only do one $100/month job isn't sustainable on a $10 commission is outrageous. The commission increase is telling me that a freelancer that only makes $100/month on jobs requires $20/month in support. Which again, outrageous.

 

Out of my 20 years in the industry I have spent 18 of that manage small providers that were high 6 to mid 7 figures anually that was built on services ranging from the $9.99 to $29.99 range and made a killing. I can tell you right now our services were a lot more intense than Upworks offerings and the support we offered was far more robust as we also supported issues from third parties to make sure our service worked for the customer.

 

In the last two years of that 20 I have been on my own and my main customer base are small ITSP's and other Internet based service providers and they all had the same issue. They all bleed money on their support because they had no idea on how to actually streamline it or staff themselves with people that know what they are doing. I had one client last year that I went into and dropped their support costs by 40% within six months and for the first time the support department actually wasn't losing them money.

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