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How does the business model of a traditional staffing agency differ from Upwork's model?

Ved Sinha

Former VP Product at Upwork

Ultimately the service they're both providing is very similar or almost the same – it's helping an employer get the job done using talent, using a worker. 

A company like Upwork is leading with technology, and reimagining it with technology. The traditional companies are doing it well, but using traditional operational processes. The biggest thing that I would say is just the level of productivity per employee is so dramatically different. Upwork has 10 to 15 times more revenue or GSV per Upwork-employee, compared to a more traditional agency. Upwork would be something like a $4-$6 million GSV per employee. A traditional staffing agency—and this is all public info - like a Robert Half, for example—would be around $300,000-$400,000 per employee. It's a huge difference, and that's because of the technology that’s doing a lot of the work. 

It shows up at every stage of the process. Whether it's a lower cost of acquisition, a lower cost of qualification and conversion, a lower cost of matching, a lower cost of contracting, I mean, through the whole chain. That's why the productivity is so different between the Upwork and the traditional. 

The other big difference is the take-rates are so much higher in traditional agencies. Take-rates in traditional agencies can be 60 to 75 percent, whereas an Upwork take-rate is about 15 percent. So there's a huge margin gap there and I have to believe that Upwork having a lower cost profile is going to be better in the long term. 

Another key difference is the usage of W-2 employees versus 1099 workers - where Upwork is more 1099 versus the traditional agencies using W-2. But now it's becoming more and more hybrid. The best traditional agencies are investing in technology, and Upwork is investing in a human layer, a recruiting layer, like the Talent Scout as well as increasing their W-2 payrolling capability.

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