The Growing Pains of a Recruitment Marketplace, Part 1

With a user base of more than 5 million clients and 12 million freelancers, Upwork is the world’s largest online workplace. No other online recruitment platform even comes close to having that size of a community. Headquartered in the Silicon Valley, Upwork is a marketplace that connects businesses and independent professionals and enables them to collaborate remotely. Arcadier speaks with Bonnie from her office in the US.

The task of building a well-rounded product and service offering and driving growth on Upwork lies with Bonnie Sherman, Upwork’s Vice President, Product (Mobile, Enterprise, Workplace) and her team.  Bonnie first gained experience building marketplaces at eBay as Paypal’s Director of Product Management from 2004-2012.

Her desire to break the mould and to gain a broader experience led her to Upwork, where she now manages the whole Upwork user experience, “everything that happens once you hire a freelancer, from the recruiting to finding and matching, identifying which freelancer the client wants to work with, and engagement post hire, which includes communication and payments.”

In this exclusive interview, we ask Bonnie about how a marketplace’s growth is affected by pricing, and how product success should be measured. She shares with us interesting anecdotes from her experience in building marketplaces.

Of some of the most important factors in a marketplace’s growth, using pricing strategically remains a challenge for many marketplace startups. Opportunities to increase revenue are always there, but how should one juggle between profits and marketplace liquidity?

“You’re more likely to be successful when you align your marketplace with the incentives that your buyers and sellers care about. We know that buyers are more likely to buy an item when the picture is large and the item description is clear, so from a marketplace perspective, you want every single listing to have a large picture,” Bonnie notes, adding that eBay used to charge sellers for large pictures when it should be made part of the marketplace’s core offering.

It makes sense to charge for something that’s valuable, but at the same time you’re trying to build liquidity and the velocity of transactions in a marketplace. You can make a whole lot of money, but that’s the wrong way to think about your marketplace — eBay and PayPal were guilty of this. When you charge for an important feature, there are going to be people who won’t pay for it, so be careful what you charge for. Use pricing to incentivise the behaviors you want or disincentivise the behaviors you don’t want.”

Upwork’s pricing model itself — in which no fee is charged to those offering jobs — is strategically designed for the supply-constrained market. But a rigid pricing model affected their user retention rates. Bonnie makes an especially really interesting point here, when she was asked about Upwork’s new pricing model that went into effect in early June. The service fee was changed from a flat rate of 10% to a "sliding service fee" of 5% to 20%.

Bonnie explains: “At the end of the day, it was about aligning our incentives with our users. We provide the most value from matching freelancers with our clients, and the 10% fee becomes expensive for people that have been working together for a while. They would eventually leave the platform and work on their own.

It’s tough to quantify how much disintermediation is happening, but we saw a few signs. We knew we weren’t providing as much value for those longer-term relationships, and we were actually losing money on shorter-term relationships because we would spend more acquiring that job. From an SEO and marketing perspective, we stopped attracting small jobs.

The sliding fee is an incentive for clients and freelancers who work in longer-term relationships on our platform. It enables us to give price cuts to freelancers that have been working with a client for some time.”

Segmenting Your User Base

Upwork segments its clients into two groups: first-time clients and existing clients. “First-time clients turn into existing clients after they post their first job. The number of first job posts is a key metric that indicates growth. Looking at the funnel, we look at fill rate and other metrics across multiple sessions,” Bonnie explains.

“Part of segmenting the user base is knowing who the key contributors to your business are. Upwork does interviews with our most successful clients, those who drive the most or biggest transactions. We try to understand their best practices so we can attract more clients like them. On the freelancer side, we segment based on quality, not revenue. We determine quality by the rate of hires and rehires, feedback, and other attributes.”

Bonnie also suggests using segmentation to protect users in your marketplace: “Other than monitoring, limit what a user can do until you know more information about them. As a marketplace operator, you can place limits on what someone can do on the site — clients who have engaged in several transactions and used Upwork for a longer time are granted more trust than someone who is new on the site. PayPal, for example, asks to verify your bank account when you sign up. Set it up so that you can assess your users based on the level of trust.”

“Seamless transactions in a product marketplace involve getting the user through the funnel in a session, in the shortest amount of time. Here, you would be measuring task completion and cart size. You can do funnel analyses and see where users are dropping off, investigate why there’s drop off and develop ways to minimize that.

We use SessionCam on the website to see where users are struggling, or if the metrics seem to be trailing off, you try to watch a few sessions to understand what’s going on. It can be eye-opening, and immediately, you’d know where your users are encountering problems.”

Design Your Testing Process around a Problem Statement

“I’ve probably tried 10 different ways of doing this!” Bonnie laughs. “We do a ton of testing on the marketplace. But really the first thing is to have a real problem statement. The problem I see, time and time again, is that people jump to a solution and then jump to designing.

If you’re having a problem defining the problem statement, talk to your users — over the phone, or over Skype if your users are from all corners of the globe like Upwork’s.” She adds that when a marketplace community is passionate, you can expect a good response rate when you reach out.

“Once you figure out the problem you’re trying to solve, there’s no need to spend all this time trying to make the mock-up pretty. Do a wireframe, a sketch on a board to get the gist, and test that out first. Then, at the end, you can make it all pretty.

It’s also important to have a baseline experience to compare with the other options you’re testing. When you do get down to usability testing, use the Rapid Iterative Testing and Evaluation method. Having a prototype with real data in it and having the user engage with the site with real information is best. If there’s a clear metric you’re trying to drive, launch an A/B test.”