The Business of Job Bid Sites for Freelancers
Bid sites have become a part of freelancing, no matter how much some of us dig in our heels and scream otherwise. It’s become very common for a freelancer to land her first clients through a site like Elance or Odesk, or for a freelancer to pick up some work to fill in holes in their schedule.
Sure, the rates are lower than what we can probably get when we’re dealing with clients on our own — or at least they feel that way after the site takes a bite out of our revenues. But there is a level of convenience that bid sites offer.
It’s important to weigh the pros and cons of job bid sites before you start using them.
Understanding the Business of Bid Sites
If you’re working through a bid site, even on an irregular basis, it’s worthwhile to take a look at how that site makes its money — to understand exactly how things work (or don’t work) in your favor. For instance, Elance made $156 million in 2011 — by charging between 6.75 percent and 8.75 percent on any project payment made through the site, as well as by charging freelancers who accept more than a handful of projects through the site for a membership plan. That’s certainly not bad for a company that was founded less than fifteen years ago.
It’s easy for a freelancer to look at those numbers and worry — after all, why should we share millions of dollars of revenue with a company that isn’t actually doing any of the work on our projects? But the reality is that these companies are providing a valuable service; otherwise people simply wouldn’t use them. The important thing is to understand how they handle money so that you can earn the maximum possible if you’re working through such sites.
Making the Money Work
It’s easy enough to see that making a comparable amount on clients you find through a bid site and clients you find on your own, you need to bid higher — at least enough to cover the percentage that the bid site collects for its fee. Most sites have variations in their fees: for Elance, the biggest question is how large the project is. If you’re earning more than $10,000 on a project, you can qualify for the lower fee structure. You need to read up on the specifics of any site you consider using. When in doubt, bid high enough to absorb the highest fees a site might charge.
But that isn’t enough: you also need to consider two other sources of fees that reduce the income you take home from any bid site: membership fees and money transfer fees. While most bid sites have a free membership level that you can use if you’re only bidding on a handful of projects, many do charge a monthly fee for heavier users.
Exactly how membership plans can break down can be complicated. Elance in particular, has a complex system: you can pay a yearly fee starting at $120 and going up to get the ability to bid on more projects (called ‘connects’ on Elance), as well as buy connects individually. Depending on how many projects you handle through a bid site, membership fees can add up quickly.
You also need to take into consideration how you’re going to get any money you earn back out of a bid site. There tend to be all sorts of different options, like checks, wire transfers and PayPal — each of which may have different costs associated with them.
You may also incur further fees if you’re located outside of the country that a site operates in: you may have to pay for currency conversion or international wire transfers. It’s not always clear whether you’ll get hit with fees on the other end, like PayPal’s standard fees. Depending on the specific situation, you may be looking at a total of 10 percent of a given project going to all these costs, possibly more.
The Price of Convenience
The best way to deal with those fees, at least from a business perspective, is to bid high enough to cover them for every project. The problem you may encounter, though, is that on bid sites, lower bids tend to win. That’s not always the case: savvy businesses will choose freelancers who will clearly be able to get a project done rather than the lowest bid on any given project, but to do well on bid sites, you do have to be competitive.
There is an argument that bid sites speed up the process of finding work for freelancers significantly. You have to decide for yourself if that convenience is worth it to you if you have to charge lower rates to land those clients. It’s a hard choice to make, and for many freelancers it doesn’t make sense. But it is also a personal choice. If you freelance part time or otherwise don’t have a lot of time to devote to landing new clients, using bid sites may be an effective strategy for you.
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It has been a few years time since Elance moved away from the annual subscription plan to a monthly subscription plan. Pretty straight forward pricing model: http://bit.ly/HdjCtV
Nice article! I’m a freelancer and long-time heavy user of (mostly) Elance myself. To aid in my daily hunt for jobs that match my skills (on any of these sites), I created a search robot that does this work for me. Saves me an hour a day, easy. Only recently, I made this service available to anyone with the eJobSpider app for iPhone.. You should check it out if you’re into Elance or any other of the bigger outsourcing sites. http://bit.ly/wdszfL Cheers!
The bottom line to job bid sites is this: you exchange the stress of prospecting for new clients for convenience and less social stress, but also for lower-value projects.
(Prospecting means that you do what every permission marketing screed says is wrong and evil: you request the attention of leads – new possible customers – to deliver your message to them. I mean cold calling, and also networking and other social interaction in real life.)
Lower business value – cheap jobs just aren’t as “important” as expensive jobs. If a buyer places a top bid limit of $200 on a project, the business opportunity associated with that project is expected by the buyer to return much less revenue than a similar project that could pay you a few thousand dollars. And job bid sites are FILLED mainly with cheap jobs. Do you expect Microsoft, Oracle or Apple Computer to look for graphic artists or copywriters on Elance? I mean, *really*?
Worrying about commissions and monthly fees is truly beside the point, as far as I’m concerned. If you could earn healthy income via a job bid site, you just pay the fees and you adjust your rates accordingly.
The primary question is whether you could do better overall and have a higher quality of clientele by developing your own clientele – very hard and requires persistence and grit.
…Instead of expecting clientele to be delivered to you by daily email blasts. Here you’re competing against every non-business aware smurf who underprices themself who receives the same information.
whatever you choose can be good, if you feel passionate about it. The point is that if u feel like you are worth 50 $ per hour, or 100$ per hour, or 100000$ x hour, (yes why not? some people who are writing bestsellers have found a way to leverage their skills) you just can’t accept low prices. YOu have to find a job that fits the value that you perceive as yours.
Job bid sites are not the right place to go if you’re looking for a job that can earn you a good living because most of the jobs there are really low-value and the vast majority of the “employers” are non-business people (i also came across many postings that are school assignments from students who’re probably too lazy or unable to do them), not speaking about the tons of weekend-warriors who post their “ideas”, the amount of hours wasted on projects that never get fulfilled because of ridiculously low budgets, etc.
I’ve been using one of those sites for some time as a software developer and i could only find 4-5 decent jobs in 3 years, which says it all. And they merely allowed me to earn some money to pay for my travels and small personal purchases, surely you will not be able to buy a house, a car, ask for a loan or anything serious that requires consistent steady income using such sites. Although if you live in a 3rd world country maybe those figures may help a lot.
I’ve heard of few people who earn a good living working there, but those are exceptions, not the norm. And as long as it doesn’t turn the the other way around those marketplaces are still far from being the “new thing” . The bulk of postings on those sites is still made up of junk-projects that mostly suit hobbyists, students or whoever wants to earn a few extra bucks for personal expenses. Serious professionals will have hard times and frustration.