Everyday Cool Tips: The Business of Job Bid Sites for Freelancers

Friday, March 30, 2012

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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