Outsourcing: Fabio Rosati, CEO of Elance (Part 5)

SM: And you have the provisions on your system to allow for both.

FR: To allow for both, yes. In fact, you can, as a business, submit a proposal as a company or you can submit candidates. You can choose either one, and then when you staff a project, every time you win a job, we set up a work room for you, and you can give access to as many people as you want. Some businesses do not allow their staffs to have access to the work room and simply have an intermediary. Others assign all of their staff and say, you, you, you are working on this project with the client. Go ahead and work together. In my opinion, it’s a better model.

SM: Let’s talk business models. Give us an overview of how the business model works. Who pays what for what?

FR: We have a really simple model. The vast majority of our revenue, more than 70%, comes from transactions, which basically says, we collect $10, and we give 92%, on average to the contractors, and we keep 8%. That’s our typical model. We have a volume discount. So, if you reach a certain level of activity with the same client … the same client relationship hits $10,000 of billings, we drop that to 6.75%. We basically lower the transaction fee to what we think is the lowest in the business. We give one free wire transfer a month. Additional wires per month are $5 each. It’s extremely cost effective.

SM: So, it’s all wire transfer, not credit card transactions?

FR: The customers pay us with credit cards, unless they have a PO account. We have large enterprises that use Elance. They don’t use credit cards. They use purchase orders and all that. Typically, smaller companies have credit card accounts and use them to pay.

SM: So, the vendors get paid by wire transfer.

FR: Wire transfer or different debit cards that [employers] may use, PayPal. But we try very hard, once we collect our fee, to make the rest not expensive for them, including foreign exchange. We use our muscle to buy foreign exchange at wholesale rates and pass that on to the contractors so that they get their money as quickly as possible at the best exchange rates possible. We have two systems. We are the only platform that offers a complete system for fixed price jobs, statements of work with milestone tracking, milestone management in escrow, which is extremely useful for certain types of projects. And then we have an hourly system with time tracking, screen shots, time sheets – verified time sheets. We do both things, and we offer the opportunity for people to choose what they want to work with.

Our hourly model gives people the option to use work view or not. We respect privacy. We think privacy is key. We still think that a lot of hourly projects don’t really require standing in front of a computer. We think that’s kind of a fallacy that you, as a writer, for example, need to be in front of a computer typing and moving the keyboard and mouse strokes in order to be productive. Not at all. You may have your very best thoughts walking around in your backyard. And then you’ll come down and you quickly write it out, but you just spent the whole afternoon thinking about something. So, our system allows that flexibility, provided that you and your client have an agreement that that’s the way it will be, that you will use the system to track the time or bill the time, but you may not verify all of it. It works. When it’s verified, we guarantee payment. So, we guarantee a fixed price guarantee and an hourly guarantee.

And then we have a freemium model membership. So, 95% of the members on Elance operate on Elance for free. They don’t pay subscriptions of any kind. But a small number of them want to be extremely active. They want to submit a lot of proposals, or they want to put entire teams on the platform, or they’re using a lot of storage space because they have a lot of work rooms. They just have big needs. That’s the premium component.

This segment is part 5 in the series : Outsourcing: Fabio Rosati, CEO of Elance
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