Prep your design or stencil. I blew it up to the size of the sign. I highly recommend removable vinyl and transfer paper for vinyl stencils. Cut the wood to size. For more intricate shapes, you can use a jigsaw to cut out the template.
Build the sign. Depending on the thickness of the wood, you can use pocket holes or screw slats to the back of the pallet wood so that each pallet slat is attached. If the pallet wood is too thin, you can generously use wood glue to attach.
Paint the background. Paint the board with any background color you choose and allow to completely dry.
Lay the stencil. Remove the part of the stencil you want to paint. Lay transfer material over the stencil. Peel back the top 2-3 inches of the backing and position the stencil onto the boards. Working a few inches at a time, carefully peel the backing material down and press the stencil into the board. Smooth any bubbles as you go. Remove the transfer material after the stencil is completely on the board.
Paint the stencil. Just before painting, run your finger along all edges to minimize any paint seeping under the stencil. You can use a paint brush or roller over the stencil. Either peel the stencil off when the paint is still wet or completely dry. Do no peel if the paint is tacky or wet underneath the top layer.
Hang the sign, if desired. I drilled holes through the backing frame and tied wire. but you can also attach hangers.