Hi, I agree you can do it freehand. We used to have a member here who had a small sign business who did hers freehand. Practice and a small, manageable router is what's required. She used some sort of oil to transfer a reversed printout of the lettering, then used a compact plunge router to limit the depth of cut. You want a double handled plunge base that will limit your depth to just a few mm. You must move it steadily, and you need to practice, practice, practice.
An alternative would be to carve it using a scoop shaped carving tool. It's a one off item, so again, practice using the same material.
I happen to have a Veritas router plane that has an inlay kit. You would scribe the letter shape you transferred to the wood. It has a double blade scribe tool. Then you could use a narrow plane blade to hollow out the lettering. It would give you a flat bottom letter. If you masked the wood, then scribed it, you could paint the letter in, or lay in gold or silver leaf using a smooth stick to rub it into place. Here's a picture of the plane and inlay kit. You could do something similar using an exacto knife to scribe the lettering.
Third picture is of the Veritas miniature router plane, cheaper, but equally precise. The key is that your scribe cuts must be as close as you can to the depth of the plane's cutter, otherwise you'll get tearout. The Veritas mini comes with a 1/8th inch cutter, the knockoff I found was half the price, but only had 1/4 inch wide cutter. Too wide for lettering.
Lots of ways to skin this cat, Welcome to the world of "Honey, I need another tool to do this."
