I seem to do quite a few towels for corporate sponsors and for gifts especially around Christmas time, I am a niche embroider, my specialization is jacket backs, carpets and specialty items. However towels can offer a extra opportunity for your customers. 
When embroidering on towels I always use tearaway, whether I am sewing on golf or fishing towels, bath robes or bath towels. I also use topping on towels that have a high nap to them.

If you sell towels in your store make them more attractive and package them with a inexpensive basket, I like displaying my blank towels in a basket like the one below, i also have samples of monograms and designs that can be personalized. Sell the whole package.

Topping is a clear water soluble material, that holds the threads of the nap down, so your presser foot will not catch them. If your pressor foot catches them, it can cause the thread to pull out.

Display your towels in a basket&

When embroidering on towels there is no right or wrong however we have a guide that has some guidelines
Placement guide for towels
Because towels can often be heavier I would recommend using a medium tearaway type of backing. This usually will give the garment enough stabilizer, I have heard that some people sew without any but I always use it. If you have any wooden hoops or one inch plastic hoops I would recommend using them. I will normally use my wooden hoops for sewing on towels the screw offer more flexibility than the plastic hoops.

Digitizing for Towels

When digitizing for towels there are several thing you should get in the habit of. First I recommend quite a bit of underlay, I normally use perpendicular and zigzag when doing towels, this will help build up the machine embroidery design it also preps the material for the stitches really well, on towels with a high nap I may also increase the density of the underlay. The topping will help as well I also like to use pull comp at .02 inch absolute I find this will compensate for the fullness of the towels. I also like the density to be 75 spi I find this will eliminate the nap or the strands of the towel showing through the letter. When I can I use .15 to .30 thickness of letters about 2 to 3 inches high for monograms and for customer logos I use 3 to 4 inches high and about 5 inches wide.

Outside the box

In many embroidery shops we stick to what has been tested over and over again, howver there are new techniques and niche markets that may be availble to you, house coats are very similar to towels , depending on the material and sometimes you can package them together. First you will need to find a good source of Towels, bath robes, as the price point will often make it hard to compete with large companies, however if you find a source, contacting upper class, hotels, spas, and specialty clinics you can offer a wide range of custom embroidered items. 

Tips 
When workiing with towels its important to compensate for how plush the towel or robe is, how much nap or length of fibers and density, Regular embroidery designs will not have enough underlay or density for this application. I recommend you try different densities on your machine when embroidering towels or robs and try using zig zag stitch to hold down the nap.. If you need more underlay to build up the stitches add perpendicular on top of the zig zag stitch.

Topping

On some towels you may find the need for the use of topping, usually its a water soluable topping that you lay on top of the towel prior to stitching, this will hold the nap down when embroiderings. Sometimes the presser feet will catch a strand an pull it, this will eliminate that.