Let’s face it, good ideas don’t come selectively to tech founders. They are also not exclusive to people from high-density population areas where you wouldn’t have a problem finding a decent team of developers to work on your MVP.
People hire freelancers and remote devs for all sorts of reasons:
- they prefer having a distributed team
- they can’t afford to hire someone in their area (I’m looking at you, Silicon Valley!)
- they’re bootstrapping and only have occasional tasks/projects they can’t handle themselves
- they’re overbooked but don’t know if they’d have enough work for a full-time employee yet
- they can do front end but they hate it (oof, this one’s relatable, isn’t it?)
- they need developers yesterday and traditional recruiting process is just too slow
- they need an MVP to prove their concept and test their market and it can be done without an in-house dev team
- they’re a non-tech founder and have no idea where to start and how to vet programmers
Whatever checks your boxes, you’re not the only person to be looking at the tempting freelance marketplaces right now. But how exactly do they work, and are there differences?
As a marketing employee of one of such marketplaces, who had to study the space pretty closely, I’ll guide you through a few things you should know and consider when hiring independent contractors.
I will mention specific companies for the sake of examples but will try my best not to give any biased opinions.
So, let’s dive in.
What are the differences?
Bidding vs. Non-bidding marketplaces
So, if you’ve ever hired or done work on Upwork (Elance/oDesk for the old-schoolers), you know what a bidding freelance marketplace is.
Here’s how it usually works:
- You have a task you want a freelancer to work on. Let’s say, you want to develop an app.
- You post it on a bidding marketplace with all the details and requirements and limit your budget to $5 000.
- Unless you made your project private, any freelance app developer on the platform can see and apply for your project.
- You get 20 applications from freelancers saying they’re ready to complete your task. All of them are free to propose their own prices for the project. Some are ready to do it for as little as $500, others say that if you want an app that won’t be crashing every 5 minutes it will cost you at least twice as much. All of them have different backgrounds, work experiences, skills, and customer feedback. Some send you proposals with fixed-price bids, others give you their hourly rates along with initial order estimations.
- You go through all the proposals, make a shortlist of candidates, interview them, and choose the one lucky contractor that gets the job.
- They start working on the project, and your money goes into an escrow. Once the freelancer delivers their work, and you approve it, the payment is released to them.
In short, that’s how bidding platforms work. Freelancers bid their prices for the projects as if it was an auction, but you are, of course, free to decide who to trust your work to not only based on the price but also the quality of the proposal, contactor’s communication, reviews, etc.
Non-bidding marketplaces, on the other hand, don’t have the same auction-like system. Although I suppose there are other successful models on the market too, the most common version of a non-bidding marketplace model is the one where you submit your project description to the platform staff, and they find you one to three candidates with the right skills and the same (or almost the same) rates out of their talent network. That process is called matching.
In this scenario, you don’t have to choose between dozens of freelancers with different skillsets and rates, and freelancers don’t have to compete over projects with prices.
So, which one’s better?
Ha, a trick question! Promised not to give you any biased opinions.
But here’s what you have to take into consideration:
- Bidding platforms generally have very tough competition. It’s generally easier to register as a freelancer on those, but that doesn’t mean that newcomers will get the assignments right away. Customers tend to trust experienced contractors more. So, in order to get their first customer reviews, new freelancers are often ready to work for rates much lower than the market average. Unless managed, this situation can disrupt the whole eco-system to the point when the rates go so low that the more experienced and skilled contractors decide that competing with the price dumping is just not worth the struggle.
- On the other hand, if you’re on a really really tight budget and money is a bigger issue than time, it’s more likely you are going to find a contractor in your price range at one of the bidding marketplaces.
- Too much choice can be bad. As I’ve mentioned before, the competition is harsh, and everyone wants a project, especially, a good one. So, brace yourself for tens of resumes to go through.
- Despite all the efforts to verify contractors’ skills, mainstream bidding marketplaces still haven’t figured out a way to do that efficiently. Together with non-regulated prices and many opportunities to forge customer reviews and “up” your profile, that often means that there’s no price-to-quality correlation whatsoever.
Okay, let’s go further!
Vetted vs. Non-vetted
Remember I said bidding marketplaces often struggle with verifying their freelancers’ skills? That’s because they generally don’t vet their applicants.
If a freelancer wants to join a non-vetted platform, they usually go through a pretty straight-forward registration process. Sometimes, it may include some sort of verification video-call or a copy of your ID, but that’s generally it.
With vetted freelance marketplaces, joining the network is much more complicated. Usually, before you even get considered as a match for a client’s project, you’ll have to go through several stages of the selection process:
- CV/background check & references
- English proficiency test (if it’s not a niche local marketplace)
- Hard skills tests/Portfolio (for creatives)
- Test task or test project
- Live interview
And while the last one doesn’t seem as important as hard skills assessments, in reality, miscommunication between freelancers and clients is probably the major reason behind failed projects and missed deadlines. So yeah, it is important, don’t skip that!
Pros and cons? Where do I start?
Vetted platforms generally tend to save you tons of time. Not only the time you’d otherwise spend on vetting contractors yourself but also time deciding who’s going to get the job. You still generally get to do the final interview and decide if you want to work with the offered candidate or…veto them 😉
If you choose a reliable partner, you can also count on a free and fast replacement in case something goes south with your first freelancer, and someone else will pick up where they left off. Non-vetted marketplaces rarely do that for you (as in “almost never”). They will return your money, but it’s little consolation when your whole project gets canceled three days before the deadline.
A con would be this: higher rates, on average. But I will give you a good reason why it’s actually better not only for the vetted marketplaces and contractors but for the customers too. You can skip all the way to the Take rates part, it’s somewhere towards the end of this article.
Next!
Specialized vs. Generic
What’s the difference and why it matters? We would call a freelance platform generic if they have more than just a handful of professionals from different areas available for hire. On the opposite side, let’s put the specialized marketplaces that only work with developers, or designers, or copywriters, or plumbers only — you name it.
Now, the important part: there is only one player on the market as of right now who could be considered ehm…somewhat a generic vetted platform. And that would be Toptal. They currently work with developers, designers, product managers, project managers, and financial experts. As the biggest, oldest, and best-funded player among vetted freelance marketplaces, they just have the meat to expand to new niches, and I’m sure we will see more to come. (My prediction would be that marketers are going to be their next big thing; leave a comment if you want to bet against me on this one)
So why is that? Why exactly is there still no vetted generic freelance marketplaces we all want?
Well, because setting up an efficient and scalable vetting process has a bit of a learning curve. Also, many of the vetted non-bidding platforms try their best to manually manage the seller-to-buyer ratio aka one of the classic challenges for all marketplaces out there. Also, because most of the players in this niche, except Toptal, are tiny independent teams that navigate in a highly competitive market trying to perfect their service while staying afloat.
Not all succeed.
But there’s also a reason why it doesn’t matter.
It’s very, very, very unlikely you ever find yourself in a situation when you need to build your entire startup team while only hiring remote/freelance contractors. You will at least have some kind of knowledge and experience of your own, and you can always outsource the rest to a couple of different partners. Superside can cover your design needs, Contently is great for hiring writers, Gun.io or Lemon will help you with development.
So, as you might have guessed, the biggest pro of specialized freelance platforms is basically a better vetting process perfected through repetition and learning from past mistakes, and higher attention to details.
Is a generic vetted marketplace possible? If we don’t count Toptal in, no. If someone tells you they’ve built one and you believe them, shoot me a letter afterward, I’ll send you a video of me saying “I warned you, didn’t I?” and maybe some stickers.
And, one last thing before we get to the part where I explain how these greedy bastards make money off of you.
GEOs
Yeah, they matter. The main reason why freelance websites benefit both clients and contractors is that the majority of deals are done between the clients from the HCOL areas and freelancers from LCOL areas, and it’s a win-win for both.
And that’s great. But when hiring a freelancer, you should take it into consideration where they’re from.
Don’t worry about so-called “cultural differences”, or bad English, or any other stereotypical things that might have kept you from working with remote developers. I promise you, all of those anecdotes about awful experiences working with people from Asia, or Eastern Europe, or Africa boil down to one bad experience with one particular person, one particular group of people — at worst. All the things you worry about can be sorted out during the interviews. Don’t think a developer you’re offered would be a cultural fit for your startup? Don’t hire them! Can’t understand them through their thick accent and that’s a problem for you? Don’t hire them! Simple.
What’s important is to do a little research and ask important questions:
- How do their rates compare with market-average in their region? Are they much lower than they should? Something might be off.
- If there’s a time difference, will they be able to work your schedule if necessary?
- Learn to provide honest and specific feedback. While your Ukrainian or Indian developer may speak perfect English, they may from time to time miss an undertone or misinterpret some local slang you love so much.
And yeah, most of the platforms have their primary markets for both customers and contractors. Some are limited entirely to working with one particular region, others just emphasize their talent acquisition efforts in certain countries.
So, what about money?
Take rates
So, how do freelance platforms make money? Basically, like any other marketplace. There are three major options:
- Commission (for example, a 20% mark-up that’s either covered by the client or deducted from the contractor’s profit)
- Fixed payment on every order (for example, $3 for order placement)
- Ads (these freelance platforms still exist, though, I can’t recall anyone I could recommend to a friend, let’s say)
Depending on a platform, the platforms mark-up can formally be put either on freelancers’ shoulders or customers’, but either way, it’s going to be included in the price. Unless you hire an inexperienced freelancer who named you a price without taking into consideration that they’ll have to pay the fee until the order is completed.
Now, I’ve mentioned earlier, the average hourly rates you’re going to pay for working with a freelancer you found on a vetted platform are likely to be higher than those of the non-vetted bidding marketplaces. But do they actually make more money?
The short answer: there’s not really a way to know this since most of the vetted non-bidding marketplaces don’t disclose their commission. In fact, I can’t think of anyone who does that off the top of my head.
But, I can tell you what it averages to approximately. It’s about 20%. Some marketplaces aim for a higher take rate, and not all of them can pull it off.
But why do they keep it secret? Their average take rates are not even that much higher than the non-vetted marketplaces and those guys basically get money for free, doing nothing (not exactly true, but I can see someone feeling that way)?
Well, because that number often fluctuates from case to case. Sometimes a platform is able to find a candidate who’s asking hourly rate is lower than average for people with the same skillsets and the client is willing to pay that price. Other times, it’s exactly the opposite. If you’re hiring for a very unique role or need a person who has a very rare skillset, the platform may actually be willing to cut off up to 90% of their usual mark-up in order to close the deal. It all depends, in other words.
In the end, what the most important thing to realize about non-bidding platforms is that the prices are higher not only because you get a better service and pay for the quality. They are higher because the freelancer you get to work with is getting paid fairly, and because of that, they are much more likely to deliver better results. Just like all of us would.
Anyway, it’s time to wrap up.
