There are a few different ways of digitizing the hand-lettered design. At this article, I'd love to go over about vectorizing with "pen tool." This is only way I would suggest for super refined outcome for print with high definition. This method may take a lot of time and effort, but once it is done vectorizing, it can be reproduced in various ways like letterprinting or printing in large format with high definition.
1. Converting to JPEG or TIFF
The first step is digitizing the pencil sketch into jpeg or tiff format by scanning or taking photo. If the sketch was scanned in high resolution, it is good enough to print in small size like 8.5"x11" (Standard US Letter) with intensionally remaining "hand-drawing" quality.
Open the scanned artwork from Adobe Photoshop then adjust level (Command+L) to maximize the contrast. Then work on the details. Adjusting composition, letter spacing, changing sizes and omitting or adding components may be included in this phase.
2. Vectorizing the artwork
The second step is vectorizing. Usually I use Adobe Illustrator and sometimes Fontlab. Never vectorizing the artwork with "image tracing" if the outcome has to be printed in scale and show its details. Like I mentioned at the beginning, "image tracing" may lose details of the sketch and the quality of fine curves that took so much time and effort to draw. I highly recommend this method when the lettering was designed with script style like the example image.
I "place" the image that saved from the first step on to the background layer—make the opacity of the image low as 50%. Lock the layer so it is not moving around by accident. Then I make new layer on top of it to re-draw the artwork with the "pen tool" over the image.