Here's how we did it:
Step 1 - We found letters we liked and printed them about 5" high on cardstock. We cut them out to make stencils.
Step 2 - We laid the stencil on our pillow
Step 3 - We traced our stencil. I found that a Conte pastel worked best on this slick poly fabric.
Step 4 - We outlined the lines with a white paint pen.
Step 5 - We went back in with a paintbrush and regular acrylic paint and filled in the letters.