One thing I saw was go by stitch count & charge 50 cents to a doller per 1000 stitches plus a set up fee of 3-5 dollars depending upon quanity & type of stabilizers. If you have to re-hoop, another set up fee.

One thing to consider is what will it cost you if you have a jam & ruin somebody's article. If you don't make enough to cover things like that, you can wind up at a loss for sure.

Also, make sure you know the copyright restrictions on the designs you are using. Most of the designs I have seen say it's fine to stitch them on something and sell it, but not to sell the actual design. But DON'T stitch Disney designs for sale (I don't know if your machine is the D version or not). You really don't want the Giant Mouse after you for copyright infringement, and I have heard that they do that.

EEVW -
Including set-up time, how long does it take to do initials and a design? Compare it to minimum wage ($5.85 an hour)

If it takes 2 hours for each towel in a set of 4, you are making way less than minimum wage. If you can do a set of 4 towels/handtowels/washcloths in an hour, that's $20 an hour and not bad for a hobby.

Offer to do sets for less than a single, if done at the same time - the setup time per item is less. And keep track of design parameters and settings so if soneone wants another "just like the other one" you can do it.

I think what you charge for family and friends is fair because it is family and friends plus this is a hobby you could get family and friends interesting in doing.

If you had your own business, you would have to charge more to cover liability insurance, overhead, taxes and business licenses.