I really simplified this by printing the colored circles with the letters on card stock. I think it would be super cute to use scrapbook papers and chipboard letters. I used my circle cutter to cut the 4" circles out. I also cut an extra circle out of white card stock. I then used tacky glue to glue the solid white circle to the lid and then glued the initial circle. (The white layer helps keep the print from the top of the lid from showing through. Especially since I am hanging mine in a window.) I Mod Podged over the top of the paper to help protect it. Then used Tacky Glue to glue the ric rack around the edges.
You can see I just poked holes with an ice pick and thread ribbon through and knotted it. The top polka dot ribbon, I left pretty long. I hung it over the curtain and safety pinned it to the backside.
I haven't quite figured out if I'm going to leave the little tail of ribbon... I thought about adding a longer polka dot one. Still thinking on that...
I had thought about embellishing it more, but decided to leave it simple this year... I can always update it next year.