I get the bags from Hobby Lobby for $2.00 when they are on sale, for $3.99 regular price. I just cut the initial out of card stock to use and I use a doily for the edging. The whole project probably costs $4-5/bag but once you have the supplies, it seems like you can make them for nothing. I find it's easier to do a printed font versus a script font, but you could do it either way. I just use standard fabric paint that you can get anywhere (even Wal-Mart) for like $1 a bottle.
When I paint bags altogether, I paint the stencil on all of them for one side; then go back and paint the initial on all of them on that side.
Wait about an hour, flip over and do the other side. But you could just do one side.
Just make sure if you wash the bag to flip it inside out and wash on a lower setting like delicate. You can find the whole tutorial here.
Or, you could buy them straight from etsy here: http://www.etsy.com/shop/
Make sure if you buy them from etsy that you convo the seller to get them all specific to your needs.
I love mine! I use it for library books, groceries, the farmer's market, selling books at Half Price Books, etc. The possibilities are endless. When I give these as gifts, I love to fill them with unique or themed items for the person.
Here's the 2.0 Model.