A conversion fee is the amount a client pays Upwork to take a working relationship with a freelancer or agency off the platform before the non-circumvention period has run, after which the two may contract directly.
The fee is Upwork's answer to the question every long relationship eventually asks: can we stop paying the fees? Under the Terms of Service the answer during the first 24 months is no, unless the client asks Upwork to convert the relationship and pays the fee. The client makes the request through Upwork, Upwork states the amount, and once it is paid the freelancer or agency and the client are free to work together directly, with no service fee on the freelancer's side and no marketplace fee on the client's. Upwork sets how the fee is calculated and publishes the method in its Help Center; the figure depends on the relationship and the method can change, so it is worth reading the current text before relying on a number.
What is given up is everything the platform provided: escrow, hourly payment protection, the dispute process, the invoicing and the record of the contract. The contract's history stays on both profiles up to the conversion but nothing after it feeds the Job Success Score or the earnings total, which matters to an agency that uses its Upwork figures as a credential.
The fee is charged to the client, not the freelancer, and the alternative to paying it is simply to wait: after the non-circumvention period ends the parties may leave without one. Leaving without paying and before the period ends is circumvention.
How Upwork Insights uses it
This term describes Upwork's own rules or product rather than a figure the index measures; the pages that do carry live figures are the stats and rate pages.