What I Learned in my First 3 Months as a Freelance Data Scientist

I recently decided it was time to make a change in my life. I have been working since I was 14 years old (tell me you are from Gen X without telling me you are from Gen X) and in all of these decades I have always worked for someone else. I very much remember the dot com bust in the early 2000’s when there were plenty of tech layoffs, but it felt mild relative to what is going on today. Perceiving that company loyalty is a thing of the past along with the desire to be my own boss, I decided that it was time to start my own company to do data science and freelancing. What I have discovered in the past 3 months of doing so is that going solo is very viable, even during times of layoffs, with proper planning. So I wanted to write about my experience getting started in the hopes that it can help some others out there who might be having a hard time finding the next thing. This is written from a US perspective, so there are some mechanics that will likely be different in other countries, but the general ideas remain the same.

Before I begin, I want to give a shout out to Brett Trainor, who created an online group called “The Corporate Escapee.” Early in my journey I came across him on TikTok and his videos and other content of his I found really gave me the motivation and courage to take the leap. Check him out!

Taking the leap is the hardest part

Let’s face it. Many (most?) of us are raised with the idea that working for a company means job security. So many (most?) of us, when we move between jobs, are moving between companies rather than opportunities. There can be great stability in working for a company. You are guaranteed certain benefits like a paycheck of a known amount provided at regular intervals. You get other things too like health insurance, career guidance and management, training opportunities, retirement savings, etc. In going out on your own, none of those things are guaranteed. So it is no wonder that many (most?) people think of companies as being the most stable and reliable places to work.

This is also rooted in history. For a significant portion of the 20th century retirement was based on a pension and your pension was based on how many years you worked for a company and your salary during that time. The idea was that you were guaranteed income from the company after your retirement. In some cases your pension could even be passed down to your children. It was a great deal! But like the dot com collapse in the early 2000’s, many pension programs were dissolved due to bankruptcy, mismanagement of funds, or other catastrophic investment losses, leading to the loss of retirement by hard working employees. The rise of the 401k retirement system was upon us. That system resulted in a retirement income that was portable, meaning you didn’t have to work your entire career for the same employer to have decent retirement savings. Hence, workers no longer have to rely on a company benefit (pension) to be able to retire.

Going out on your own means that you no longer have the security of these things (salary, 401k contributions, health insurance, etc.). It is natural to be fearful of this. However, in this time of layoffs that rival the early 2000’s, I ask whether that feeling of security working for a company is just a myth?

Also, consider what the job market is like right now. From both my direct experience as well as through conversations within my network I know that open roles for data scientists are presently resulting in thousands of applicants. If you are applying for these roles, the odds of getting a call back are very, very slim. You are literally one of thousands of people they are considering. However, if you go out solo, you will be talking directly to the person making the decisions on contracting. Further, unlike many companies that post open roles and then never hire people into them, if they are talking to you at all it likely is because they have real work that needs to be done. If they are even talking to someone else, it is likely that there are only a small handful of potential applicants. Your odds of getting noticed are much better once you can make contact. For more on how to do this, see my section on networking below.

The reward at the other end

I have discovered there are many, many benefits of working as a freelancer. As I started writing this section, I realized that it was not possible for me to come up with a ranked list, so this is just my attempt at getting some of them written down.

It really comes down to this: I get to pick what I work on, when I work on it, and for whom I am working. Let’s address these in order.

As my career has evolved, I have developed a deep interest in both natural language processing (NLP) and graphs. It turns out that this is a great combination for working with large language models (LLMs) and generative AI. In my previous roles if I wanted to work on these things I would have needed management permission based on business need for the work to be approved. Now I can specifically seek out work in those areas.

One of the great things about being your own boss is that you make the rules. So if you decide that you are only going to work 4 days per week (or even less!), great. If you don’t want to be sitting at your desk from 9–5, don’t! You have infinite freedom here to define what your work life is like and you can optimize it however you want! In my case, I love to ski and live 5 miles from a world-class ski resort. So I make the rules where I can decide to go out and ski whenever I like — and my boss fully supports that!

As for picking who you work for, what I mean by this is that you are free to take on work for whomever you choose, not just because some manager has directed you to do so.

I have to tell you that in the process of going solo, these freedoms have really been what has been most striking! While I knew in theory that they existed, when you actually start living and working this way you can come to a much better realization of work-life balance. For the first time in my working career I feel like I actually have control over my work and my happiness. I am not subjected to the whims of an employer who may or may not have loyalty to me. And let’s face it, corporate loyalty is a thing of the past.

In the next section we will look at getting started and hopefully some of these benefits become clear.

So then how do you make the leap?

There are two key things that will help you be successful if you decide to try this out: planning (financial and business) and networking.

Financial planning

There is a lot that should go into this before you strike out on your own. Much of it is financial. You need to know that you will likely be without a paycheck for a bit and it might take you a few months or more to build back to your full, corporate paycheck. So if you have the opportunity to save some money to get you through that time, it will really help.

Second, you should sit down and do the math looking at how much money you need to bring in per month since this will be important in determining your rates. In my case, my goal was to replace my corporate salary. I am the primary breadwinner (and sometimes sole breadwinner since my spouse works a seasonal job) for my family. So I looked at not only my salary, but also the cost of health insurance, how much money I was putting into my retirement savings, and my expected expenses for running the business (to include paying for lawyers and accountants). This determined what my gross income needed to be. Next, you have to know that when you are self employed in the US you will be paying quarterly estimates on your income taxes. This amounts to approximately 35%. Using this I was able to determine what my net income per month needs to be in order to break even on my corporate salary.

Next, you need to consider what your pricing model will be. Will you be charging hourly and then tracking your hours? Will you be on retainer for a fixed fee per month? Maybe you will charge on a per project basis? As you looking to be the person doing the coding (freelance) or advising on how to get a project going (consulting)? Maybe instead you are seeking a fractional role? Getting started, I found it easiest to wrap my head around the hourly freelance concept. People who have been working solo for a while will tell you that this is not ideal and that it is much more desirable to be on retainer. At this stage, my clients prefer hourly billing, so that is what I am doing. So it is easy to see that you can take that break-even monthly net income and work backwards to what hourly rate you should be charging to get there.

But here is a gotcha! I originally thought I would take that amount and assume 40 hours per week to work out the hourly rate. Wrong! You need to build in some slack because, as it turns out, most of us don’t actually work 40 hours per week, even in corporate. For example, I do not charge clients when I have lunch, walk the dog, work out, or pick my kid up from school. I also only bill when I am at my keyboard working on things for my clients and not when I happen to be “sitting around” just thinking about their problems. You also need to allocate time for networking, setting up the next contracts, etc. A mentor told me that a good rule-of-thumb was to assume that you will actually only be billing 60% of the time. This gives you a practical buffer such that you are still hitting your goal net income on a realistic number of billable hours.

So based on this, I set my hourly rate. When I compared that rate to contractors of similar experience levels I had worked with in previous roles, it seemed realistic. (Consider that contracting shops will typically tack on around a third for their fees, so the rate a contractor actually takes home is typically around two thirds of what the contract shop bills for.) I utilized my network and bounced this rate off of them and they all agreed that my hourly rate was appropriate.

Business planning

In addition to having planned for the finances of the situation, you should also plan out the setup for the business. There are many different ways you can do this and I am not a lawyer so you should consult with one before making your decision. One way you can do this is just to be working as an individual, independent contractor (sometimes referred to as a 1099 based on the tax documentation used in this approach). Another option is to set up an actual business such as an LLC or Corporation. I elected to create an LLC because it provides a certain amount of legal protection and separation between the business’s finances and my personal finances (i.e. it is hard for clients to go after your personal finances if they sue the business). I enlisted the aid of a lawyer to help me set one up in my home state. There are also plenty of online options for doing this where you might be able to do it yourself, but I felt the peace of mind of having a trained professional do this for me was worth it.

I also worked with my accountant who does my family’s personal taxes to help with the business taxes. I cannot say too much about this since I have not submitted my first quarterly estimated payment yet, so that will likely be included in a future post. However, one thing that I can say at this stage is that it is VERY important that you save receipts for EVERYTHING. There are many expenses you will have such as fees paid to the lawyer, computers, web pages and domain names, etc. that are tax deductible. However, they have to be tracked and accounted for. You will save yourself a lot of time later if you start by religiously tracking these things.

Finally, once you have the business set up, it can help setting up a separate bank account for it. While maybe not required, I find this helpful since it really keeps the business finances cleanly separated from my personal finances. When it is time to get paid, the business cuts you a check. Having a debit card linked to that account further helps keep things separate.

Networking

We have all been told, practically since infancy, that networking is important. That is especially true when freelancing or consulting. When I decided that I would start my own business and particularly once the LLC was formed, the first thing I did was to reach out to my network to let them know what I was doing. I have been very fortunate in my career, about 23 years to this point, to have met many great people working directly in data science or in companies who regularly work with data scientists. I initially started by quietly talking with a few of my mentors, but then when I was ready I announced on LinkedIn that I had launched the company. I was very fortunate that there were some people in my network who had need for someone to do freelancing LLM work on an hourly basis. Some of the interest came from people I had worked with in the past. Other interest came from people who had seen content of mine online.

In my opinion, networking is the area where people who have been laid off (or other considering this as an option for layoff protection) might have a more difficult time than financial planning. However, that doesn’t mean that you can’t build your network quickly. Attending (better yet: speaking at) conferences and meetups is a great way to do this. Ideally, you have an employer that is willing to pay for you to go. Even if they aren’t, consider this an investment in yourself and your career. If you are running a solo business already, you can write these trips off. Many of the bigger conferences offer discounts to people who are unemployed. Additionally, most (many? all?) conferences need volunteers to help at them. So even if you are not speaking, you can still have the opportunity to meet and network with people. Writing blog posts and participating in open source projects are also ways to grow your network. Additionally, it can be helpful to have a portfolio of work for others to view.

Some suggestions on the day-to-day mechanics

While I am still new to freelancing, I have learned some things that have helped me in the first few months be more efficient. Pretty much all of them have to do with the philosophy of making it easy for your clients.

You should consider that there are some tools (which are business expenses) that will be expected. First, just like working in corporate you should have an email address specific to your work. For me, I bought a domain name for my business and set up a Google workspace for that domain. This will also help when certain platforms ask for your work email address and scoff at a Gmail address. I then take advantage of Google Sheets for managing my expenses and time tracking. (I might move this to QuickBooks, but haven’t made that transition yet. Ask me after this first round of taxes if it is worth it.)

Next, I found it very helpful to have a means to allow people to easily book time with me. I found Calendly to be a great option for this. If you are going to do this, I would suggest that you place some limits on the hours that people can book with you. Remember that when you are not billing, you are not earning. So try to avoid spending all of your time in prospecting meetings.

I also have put some thought into how to send invoices and receive payment. Again, the idea here is to make it easy for your client to pay you. You can set up accounts with Stripe or Square to do this or QuickBooks can do it for you. However, bear in mind that they will charge fees of something like 3% on the total invoice. This can really add up. Another option for receiving payment is directly via bank transfer/ACH, which can be harder for your clients but does not take off those fees. Be prepared to work with your clients on what works best for them. And bear in mind that having a business banking account, whether for ACH transfer or Stripe/Square/QuickBooks, means that you are not handing out your personal banking information to clients.

Finally, it is important to know that every client will have a different set of tools that they are most comfortable with. Some prefer Slack. Others are very Microsoft-centric, preferring Teams. While I personally have very strong personal preferences, I have found it important to be able to work within any of them. In my case, this means that I had to buy a PC since my Linux machine doesn’t handle Teams very well. C’est la vie.

Concluding thoughts

It is true that I have only been working solo for a few months now. So it is too early for me to say if I have been 100% successful. However, I am incredibly fortunate in that I have thus far achieved all of the goals I have had for my company at this point. And I am greatly enjoying the new found freedom, flexibility, and balance in my life.

While I began this post with a discussion on the fact that many people do not consider freelancing because of the lack of security, I actually find myself feeling much more secure than in the corporate world. For one, I am not subjected to layoffs. In fact, my guess is that more companies will start turning to freelancers, contract employees, and fractional employees because of their layoffs. It is not like they have decreased the amount of work that has to be done just because they have laid people off. They will need people to come in and do that work, even if they are not adding to their head count. Contracts will come and go and constantly securing contracts is part of this lifestyle.

All of that being said, I view my true definition of success as being whether I can sustain this work — and my goal of replacing my corporate salary through my solo endeavors — beyond just my first few contracts. We will not truly know the answer to that for some time. But right now things are looking positive!!!

What I Learned in my First 3 Months as a Freelance Data Scientist was originally published in Towards Data Science on Medium, where people are continuing the conversation by highlighting and responding to this story.