How to Start a Data Analytics Business
When You Want More
If you have experience working with numbers and finding patterns that indicate trends, then starting a data analytics business could be your next career move! The data industry is rapidly growing, so get in now to stay ahead of the competition.
Below, we’ve done the legwork for you to provide a free guide to starting a home-based data analytics business today.
Not interested in starting an analytics business? Visit our generic Start A Business Guide.
What Does a Data Analytics Business Do?
A data analyst takes raw data and transforms it into meaningful information. This process is often described as “storytelling.” Data is organized to tell a particular story about a particular problem, process, or campaign, to name a few. This organized data—visualized in easy-to-read charts and infographics—is presented to clients through the lens of a narrative. Because many people tend to close off when they see numbers, data analysts use storytelling as a means to grab and keep their audience’s attention.
Just as a story has a beginning, middle, and end, so does analyzed, visualized data. It is the analyst’s job to tell this story in a compelling way, clearly translated. The analyst will present findings during meetings, often supplemented by documents and slideshows so that clients can visually connect with the data themselves. To say this another way: the communications side of this profession is just as important as the analytics side.
Most often, data analysts work with entities and individuals who are already tracking data. With the numbers in hand, it’s the analyst’s job to figure out what those numbers say. (Why do sales always drop in the winter? Will our bottom line be impacted by a drop in tourism? Do employees perform better when they take more time off?) By taking raw data and identifying patterns, data analysts enable organizations to better understand what’s working, what’s not working, and where there are opportunities to improve.
There are four types of data analytics:
- Descriptive analytics looks at what’s happened over time. (Did sales go up or down?)
- Diagnostic analytics takes into account why something happened. (Did the new website help drive sales?)
- Predictive analytics assesses what could likely happen in the near future. (Will we see a spike in sales following the upcoming Instagram ad campaign?)
- Prescriptive analytics offers a course of action. (If the new website and Instagram ads are generating an increase in sales, then we should continue putting resources into our online presence.)
While an analyst will often be tasked with these first three types of analytics, they will less frequently be tasked with prescriptive analytics. This is a more advanced and specialized service. Some clients will want your input here, while others will not.
Steps to Starting a Data Analytics Business
Create a Business Plan for Your Data Analytics Business
Before you get started, you’ll need an idea of what resources you’ll need—and how to monetize your business in a practical way. We’ve answered the biggest questions about clients, costs, and profits below.
Who is the target audience?
The target audience for a data analytics business is any individual or entity seeking to make meaning out of numbers and stats. Schools might hire an analyst to determine why there’s been a drop in graduation rates. A political candidate might hire an analyst to assess which voters to focus on during the campaign. Nonprofits could hire analysts to figure out why a fundraising campaign didn’t work. A retail business might hire an analyst to break down customer habits when visiting their website.
Some data analysts may only work with clients in a specific industry. Political and business analytics are entire fields on their own. So, if you have knowledge about a singular industry, you could focus your business on that. Otherwise, your potential clients may be as varied as the data they offer.
How do I get clients?
The most surefire way to bring clients into your data analytics business is—you guessed it—networking. Because you’ll be dealing with sensitive data, establishing relationships and trust with potential clients is essential. Joining your local chamber of commerce is a good way to get yourself in front of owners and executives. You might also consider setting up meetings with potential clients to discuss their data analysis needs and how you can help fill those information voids. Even if you don’t get hired on the spot, these potential clients might reach out later or introduce you to their business friends.
Before you even begin seeking clients, however, you’ll want to create a website that showcases representative work. Perhaps your website could offer useful information or resources, as well. You’ll also want to create professional social media accounts and potentially buy social media advertisements.
How does a data analytics business make money?
A data analytics business makes money by doing contract work for clients. You will work as a consultant, aka a third-party entity hired to do specific work for an agreed upon rate. Most consultants charge an hourly rate but determine project specifics ahead of time so that an overall cost is agreed upon from the start.
- Payment: Some data analysts require full payment upfront; others may ask for 50 percent to start and the rest upon project completion. Collect payment however works for you, but be sure to detail those expectations in the terms and conditions page on your website (for smaller projects) or in a contract (for larger workloads).
- Contracts: A contract is a good idea not only to keep payments on track, but also to decrease your liability and set reasonable expectations. Though you’ll definitely want to have the contract reviewed by an attorney (consider creating templates that you can tailor to specific projects), be sure to include information about the parties involved; scope of the work; timeline of deliverables; fees and expenses; confidentiality and ownership of work; early termination and mediation.
How much money will it take to get started?
Starting a data analytics business won’t set back your bank account too far. You’ll need a reliable laptop (at least $1,000 if you don’t already have one). You’ll also likely want to invest in data analytics software, which aids in data mining and visualization, among other things. Tableau is a popular choice starting $70 a month. With a bit more flexibility in terms of pricing is Zoho Analytics, which starts at just $22 a month. Other platforms such as Looker and InsightSquared offer individualized quotes based on your unique needs and situation. With these platforms, you’re able to pull in data from multiple sources, and then use the available features (there are many) to organize and mine that data before turning it into infographics.
While you could absolutely use a program like Adobe Illustrator to create your data visualization sets, programs like those listed above are created specifically to help organize, mine, and interpret data, in addition to visualizing it.
How much do data analytics businesses make each year?
Data analysts typically earn $50,000-$100,000 a year. Cities like Seattle can see earnings of nearly $150,000, according to Hired. Just as your pay rate goes up with experience, it also goes up with the complexity of the services you offer. You will charge a client more if you provide prescriptive analytics than if you simply offer descriptive analytics, for example.
How much should I charge?
Data analysts generally charge anywhere from $50-$250 an hour, determined by location, experience, services offered, and project complexity. Since you’ll be working as a consultant on a project-by-project basis, it’s a good idea to lay out how many hours a project will take ahead of time. If you charge $50 an hour for an 80-hour project, you and the client will both understand from the get-go that the project will cost $4,000.
What educational background do I need?
Most data analysts have a bachelor’s degree in a related field such as finance, economics, or statistics. There is a lot to know when it comes to understanding data, and having a degree is one clear way to gain this knowledge. Data analytics certification programs are another option, generally available through colleges and universities.
Though a master’s degree in data analytics isn’t required to start your own business, it’s worth looking into. When you’re working as a consultant, you want to be able to offer the best possible services to your clients. In order to do that, your knowledge needs to be vast. Remember, you’re the expert. While you can gain data analysis knowledge through years of work experience, a master’s degree is one way to do a deep dive and speed up the learning process.
Select a Name for Your Data Analytics Business
Have a great name idea? Before you start marketing and branding your business, you’ll need to ensure your name is available. Most states prohibit or restrict businesses from adopting names that are already in use. Even if it’s legally allowed, a copycat name puts your business at risk of a lawsuit.
See if your business name is available in your state with our Free Business Name Search.
Trademarks and Domain Names
Plan to trademark your business name? You can see if the trademark is available on a website like Trademarkia. It’s also a good idea to see if the domain name is available, which you can do on websites like Network Solutions and GoDaddy. Even if you don’t plan on putting together a website right away, you can buy the domain name to make sure no one takes it in the meantime.
Choose a Business Structure
Should you form an LLC? A sole proprietorship? Your choice of business structure will affect many aspects of your business, from liability to taxes.
Sole Proprietorships & General Partnerships
If you don’t file any paperwork to legally form a different kind of business—you have a sole proprietorship or general partnership. Essentially, these are “default” business structures. A sole proprietorship has one owner, and a partnership has multiple owners.
These structures have a few initial benefits. They’re easy, fast and cheap to start and maintain. However, the limitations and risks of these business structures quickly become more apparent as your business grows. In both of these business types, you are your business, legally speaking. Your company’s legal business name is YOUR name—so you’ll need a DBA to operate under any other name. Any business debt is YOUR personal debt. If anyone sues your business, they are suing YOU personally.
LLCs & Corporations
Limited liability companies (LLCs) and corporations are business entities formed at the state level. The entity is legally separate from its owners, meaning the owners are not personally liable for the debts and obligations of the business. As a separate entity, the business also has multiple tax election options. For example, both LLCs and corporations can choose to be taxed as S-corps if they meet the requirements.
LLCs and corporations are not quite as simple and inexpensive as default structures. LLCs and corporations come with formal requirements like state reports. They also have more fees than default structures, such as formation and annual report fees. However, the benefits of an LLC or corporation—especially liability protection and tax flexibility—are significant.
Legally Form Your Data Analytics Business
If you opt for a sole proprietorship or general partnership, there’s no formal paperwork to file to legally create your entity—you just start selling your product or service. However, you will not have anyliability protections or tax flexibility.
LLCs and corporations are formed by filing paperwork with a state agency, typically the Secretary of State. To start an LLC, you file articles of organization. To start a corporation, you file articles of incorporation. In most states, you can file these forms online or download a paper form from the state’s website.
Whether you’re forming an LLC or corporation, your articles will require certain basic information about your business, such as your company’s:
- business address
- registered agent and office
- business purpose
- members/managers or directors/officers’ names and addresses
- number and type of authorized shares (for stock corporations)
You’ll also need the signature of someone authorized to sign on behalf of the business, along with the state’s filing fee. Fees vary by state but are typically between $100 and $200. If you hire Northwest to form your LLC or corporation, we complete and submit your formation paperwork on your behalf for just $100 plus state fees.
Create Internal Policies and Procedures
It’s important to put your company’s internal policies and procedures in a written document, especially if you’re starting your business with others. Partnerships have partnership agreements. LLCs have operating agreements. Corporations have bylaws.
These documents look a bit different for each kind of business, but they serve the same general purpose. They ensure there’s a clear path forward for any major issue that may arise, from changes in ownership to closing the business. LLCs and corporations also typically need an operating agreement or bylaws in order to open a bank account.
Get an EIN and Register for Taxes
Nearly all LLCs and corporations will need to request a federal employer identification number (EIN) from the IRS. If you file corporate income taxes, have employees, or file certain franchise taxes, you must have an EIN. An EIN is also a common requirement for opening a business bank account. Most businesses can request an EIN by filling out the IRS’s online form.
Your EIN is for federal taxes—but you’ll likely have state and local tax obligations as well. You will most likely need to set up an account with the state’s Department of Revenue, and you may need to apply for a state tax ID or a sales tax license as well.
Learn more about how to Get an EIN for your business.
Open a Bank Account
A business bank account keeps your personal finances separate from your business finances. For LLCs and corporations, keeping separate finances is essential for maintaining liability protection. To open an account, LLCs and corporations typically need to bring to the bank a copy of their articles, their operating agreement or bylaws, and their EIN.
Obtain Required Licenses and Permits
Many businesses will need a business license to operate. Licensing information—as well as any zoning requirements or other permits—can usually be found on the city or county website.
If your home is part of a homeowner’s association, you’ll also be subject to any of their restrictions for home-based businesses. Some areas may also require home-based businesses to obtain a Certificate of Occupancy (a document certifying the property owner has given the business permission to operate).
Next Steps for Your Data Analytics Business
After your business is up and running, there are a few additional steps you may want to take as you grow:
- Get online: With your domain name, you can create a business website. You can hire a professional or use a website-builder like Wix or WordPress. You may also want to invest in online ads through a program like Google Ads.
- Hire employees: Hiring employees requires quite a few steps. You’ll need to collect W-4s and I-9s from employees, report the new hires to the state, set up withholding, pay for unemployment insurance, distribute any required documents and notices to employees, and display wage and safety info in the workplace. Employer.gov is a good place to start, followed by your state’s tax or labor office.
- Get business insurance: While LLCs and corporations protect you from personal liability, you don’t want your business to go bankrupt in the face of an accident, injury or other disaster. At minimum, it’s a good idea to look into general liability insurance. Home-based businesses can sometimes add insurance onto their homeowner’s policy. For your data analytics company, it’s also a good idea to look into Errors and Omissions insurance. This will protect you against claims regarding inadequate or negligent work. E&O insurance costs most small businesses between $500 and $1,000 a year, according to Insureon.
Is a Data Analytics Business Right for Me?
What’s it really like to work in a data analytics business?
While it may seem that the entirety of a data analyst’s job is about numbers, this is actually a very communicative profession. Not only are you the numbers person, you’re the tell-us-what-these-numbers-mean person. Clients are hiring you to help them understand the numbers, which you can only do effectively if you’re organized, straightforward, and empathetic. With this in mind, you also need to think visually. You will talk about your findings with clients as you show them infographics that explain the data in colorful, vibrant ways.
And yet data analysis is also a solitary profession. When you’re actually analyzing data, you will primarily work alone. Though you may have some communication with clients throughout the analysis process, you need to be comfortable spending a lot of time solo and looking at a screen.
What does it take to succeed in the world of data analytics?
To succeed in the world of data analytics you need to be just as good with numbers as you are with people. You need to be able to weave a narrative as seamlessly as you dissect a data set. This is a career path that requires you to have a keen attention to detail and specifics, while also being able to step back and look at the big picture. This job requires you to be an introverted extrovert, someone who is just as comfortable sitting alone as they are speaking to others.
Ready to Form an LLC or Corporation?
Northwest Registered Agent is here to help with all your small business ideas and needs. Answer a few simple questions about your business, and we’ll prepare and submit your formation paperwork to the state. We also provide your new business registered agent service, free business forms and guides, and much more.