I design and print mine on freezer backed cloth from C. Jenkins Co. and then applique to the back.
I usually make 2 labels, the other is my name, dates and location.
I found Printed Treasures hard to needle
http://www.cjenkinscompany.com sells a new product that's soft, almost like Lawn cotton.
Click Miracle fabric sheets on the left side and scroll down. I buy the slightly irregular 20 for $12.95 (on sale right now, usually $16.95)
You can order regular sheets if you prefer for more $.