Toptal is an online talent marketplace that connects companies with the best freelance software developers, designers, consultants from around the world. The company helps entrepreneurs build better businesses by providing them with fully vetted software developers, designers, and consultants best suited to their business.
So how does Toptal make money? What is the business model of Toptal? This article will give you a detailed insight on the same.
Toptal is an online talent marketplace where top-tier developers, designers, consultants, and experts work with the world’s most innovative companies and startups. Toptal makes money by charging a markup fee over the hourly rate of the freelancers in its exclusive network.
Toptal started in 2010 and is a private company that has been profitable since its inception. The only funding was $1.5 million in seed capital. Investors include Andreessen Horowitz.
Toptal is a global network of top professionals in software engineering, design, and finance. Toptal places the professionals it hires with clients to work on freelance projects.
Toptal brings together the top 3% of developers with companies around the globe. They are able to provide business owners with a wealth of talent to meet their most pressing development needs.
In July 2021, estimates are that Toptal has more than 4,200 active professionals working on projects through its system.
Toptal currently works with over 700 companies in 17 countries including some of the biggest names in tech such as Samsung, Paypal, eBay, and Zendesk.
How Does Toptal Make Money?
Using Toptal freelancers, companies can tap into the expertise of top tech talent around the world. At the same time, freelancers find high-quality jobs and expert guidance from Toptal’s award-winning team.
Toptal handles the marketing and sales costs to secure the freelance projects. It claims to be the largest distributed professional workforce in the world. The company does not have a physical headquarters or rent any office space.
Toptal invoices a client directly for the hourly work done on the freelance project. The company deducts its commission and pays the freelancer in the Toptal system a much lower, pre-determined rate that is about half of what Toptal collects.
Freelancers set their hourly rate based on Toptal’s recommendations in alignment with their expertise and location. Toptal can match an available freelancer with a project in about 24 hours.
Annual revenues for 2020 are company-reported on LinkedIn to be over $200 million.
Toptal’s Estimated Revenue Growth
Here is a table showing the estimated annual revenues since inception:
|Estimated Annual Revenues
The company self-reported that it is currently experiencing a year-over-year growth rate of 40% in 2021.
Toptal Business Model Challenges
Toptal has a unique model where it accepts only clients who meet strict quality standards and guarantees that the best engineers will be placed at the client. This approach is resonating with both clients and job candidates, as Toptal keeps growing by double-digits each year.
The two-sided marketplace mainly uses manual matching processes, which are not as scalable as fully automated matching processes.
While the online staffing market is growing fast, the competition is getting even fiercer. The large enterprise market, which cares more about talent and technology, presents a challenge to small-scale but heavily curated platforms like Toptal.
Toptal is effectively addressing the rising talent demand but it is facing challenges from the competition.
There are many online marketplaces for freelancers that are general competitors of Toptal. Toptal focuses on software engineers and other professionals that it claims are in the top 3% of their field.
Direct competitors for Toptal include Andela, MBO Partners, O.C. Tanner, Terminal, and Transforify. There are also many other marketplaces for freelancers that are competitors of Toptal:
- Andela: Toptal sued Andela in June 2021 for allegedly cloning the Toptal freelance marketplace with the help of Toptal ex-employees.
- Business Talent Group: On-demand business talent for projects.
- CloudDevs: Specializes in helping businesses and developers collaborate.
- Contently: Specializes in freelance content creators.
- Crowdspring: Specializes in industrial designers, graphic designers, and content creators.
- Dribble Hiring: Specializes in freelance designers.
- Envato Studio: Specializes in designers, developers, and other digital talent.
- Fiverr: General freelance marketplace.
- Flexiple: System for freelance software developers.
- Freelancer.com: General freelance marketplace.
- Gun.io: Specializes in software engineers.
- Guru.com: General freelance marketplace.
- lemon.io: Specializes in software engineer.
- MBO Partners: Provides contract work for self-employed professionals.
- O.C. Tanner: Traditional “headhunter” agency.
- PeoplePerHour: General freelance marketplace.
- Popular Pays: Specializes in influencers.
- Skyword360: Specializes in content marketing talent.
- Supersourcing: Specializes in contract developers that do project work.
- Terminal: Specializes in freelance software engineers.
- Transformify: Job placement agency for lecturers, experts, and consultants.
- Upwork: General freelance marketplace.
- Zerys: Specializes in content marketing freelancers.
How Much Does a Software Engineer Make Working for Toptal?
Toptal started by offering the services of software developers and software engineers. Glassdoor reports that a software engineer makes $62 to $66 per hour working for Toptal. The average annual salary for a Toptal software developer is $110,111.
The U.S. Bureau of Labor Statistics reports that the median pay for an American software engineer in 2020 was $110,140. This is in alignment with the average pay earned by a software engineer working for Toptal.
A senior-level application software developer in India with at least ten years of experience earns 1,397,624 rupees a year, which is about US$18,773 (July 25, 2021 exchange rate).
Toptal makes a rate adjustment based on the location of the software engineer. Nevertheless, software engineers in India who qualify to work for the Toptal system probably get paid very well from their point of view.
How Much Do Clients Pay to Hire a Toptal Software Developer?
Clients pay, on average, double the rate that Toptal pays its software developers.
Flexiple says the hourly rate for a Toptal software engineer ranges from $60 to $150+ per hour. The part-time hire rate is $1,000 to $2,400 per week. The full-time hire rate is $2,000 to $4,800 per week.
Note that Flexiple is a direct competitor to Toptal, so these rates have not been verified with Toptal. However, the rates do seem to be reasonable estimates.
Pros and Cons of Hiring a Toptal Software Developer
There are some good reasons for the success of Toptal with just a few areas of concern.
- Software Developers’ Experience Level: Toptal prides itself on hiring the best of the best. The company maintains very high standards in its vetting of applicants. Additionally, continuing to work for the company requires developers to receive ongoing excellent ratings from clients in final project reviews.
- Specific Recommendations: A client must submit detailed project requirements. The Toptal system will match the client’s needs to an available freelancer with the exact skills needed to do the work. Recommendations are made to the client within 24 hours.
- Established Company and Brand: Toptal is well-established and has many large enterprise companies as its clients.
- Cost: The most prohibitive thing when using the Toptal system is the cost. The markup on the hourly rate is sometimes more than 100%.
- Minimum Commitment: There is a $500 advance deposit to put a project in the Toptal system and a minimum of 20 work hours per project per week.
What Does It Take to Become a Toptal Hire?
Toptal, short for “top talent,” has a very rigorous selection process to screen applicants remotely. The process includes skills testing, language testing, and a personality assessment.
It may take up to five weeks for an applicant to complete the evaluation process and be accepted to work for the company.
Out of thousands of monthly applicants, Toptal accepts only the best 3%.
This onboarding process includes the following:
- Video Call Interview
- Timed Skills Test
- Screen Sharing Evaluation
- Simulated Project
1. Video Call Interview
The video call interview is designed to screen for competency in the English language with the ability to understand what is said and to be understood.
The interviewer evaluates the applicant’s soft skills, including the ability to speak comfortably with the interviewer and collaborate with others.
2. Timed Skills Test
This skills test is very challenging, and the time to complete the test is limited. Failure to successfully pass steps one and two of this onboarding process disqualifies about 90% of the applicants.
3. Screen Sharing Evaluation
An applicant shares his or her screen with an evaluator while working through challenging exercises. The evaluator looks for speed, accuracy, and the creative ability to solve problems.
4. Simulated Project
The applicant is assigned an example of a real-world project that they must complete within a certain amount of time, usually 30 work hours.
The time needed to apply for acceptance into the Toptal system is significant, yet thousands of applicants make an attempt each month. They want to work at the top of their field for the substantial clients of Toptal.
What Types of Professionals Does Toptal Have in Its System?
Enterprise companies with various projects initiatives as well as start-ups can tap a talent pool of software developers who can work with the following programming languages and systems:
|Ruby on Rails
The designers in the system work with the following systems and projects:
Acquisitions and Growth in Offerings
In 2016, Toptal acquired Skillbridge. Skillbridge created a freelance marketplace for accountants, market research consultants, financial modelers, and statisticians.
In 2017, Toptal launched a vertical expansion that offers the services of automotive design engineers and software engineers who specialize in the automotive industry.
In 2018, Toptal launched another new vertical offering for blockchain engineers.
The company has no plans to go public and does not want to even speak with interested investors who do not agree with all the preconditions published on the website as “A Note to Potential Investors” by Taso Du Val, Toptal’s founder, and CEO.
Du Val says he runs a profitable company. It is scalable without the need for institutional capital investment. He plans to scale up to tens of thousands of employees globally and do this in the way he wants.
Here is a summary of the preconditions for potential investors to accept:
- The company has no office and will never have any offices.
- There is no downside protection for any investment.
- Investors will not get a board seat. There is no board.
- There will be no drag, ratchet, MFN, tag, tranches, etc.
- No participating preferred or preferred rights.
- No liquidation preferences.
There is no need for outside capital, so if you are interested in investing in the company, forget about it.
For the past few years, Toptal has held a unique place in the world of online staffing. Unlike most companies, it has refused to take outside funding and has remained focused on a small segment of the market.
With its approach, Toptal has grown quickly but it now faces a choice – can it take on more business or will it hit a wall?
Conclusion: How Does Toptal Make Money?
There you have it, we have covered everything on the business model of Toptal. Hopefully, now you have a better idea of how Toptal makes money.
As a place for hiring a remote workforce, Toptal is able to operate with low overhead and offer freelancers affordable rates. Their services stand out from the rest of the pack, but their model is not unique.
Toptal is a middleman company. They are making money by connecting both companies and freelancers with each other. It’s a good idea and many people like it. While you can make money on the platform, it won’t be easy because you’ll have to compete with other freelancers who can match your skills and price.
They have big goals for the future and are doing a great job of sticking with them, as opposed to changing direction frequently. And they’ve been able to build all this while making sure their freelance network is top-notch.
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