[Lonman]

DO NOT use audience response or participation for a judging criteria. Get at least 3-5 judges preferably not associated with the bar, but have at least some kind of music knowledge. If it's a big contest, I will try to get local radio personalities, vocal trainers, recording engineers/producers from local studios, local 'karaoke friendly' musicians - yes they do exist. Make sure your judge understand how to judge & what is being looked for & to ignore large crowd applause for any one person. We judge more on vocal ability including timing & tone, stage performance & appearance over anything else.
We've used the nightly contest - in which is usually small prizes & in house judges not sitting with contestants. And we've used the qualifying rounds in which people will sign up. You'll have an inhouse contest for the night with either outside judges or in house not sitting with contestants. They will sing & be judged. The winner (s) will come back at a later date to compete in the finals. You can actually go into longer contest doing quarterly, then semifinals then finals - but this takes more work & tracking of all contestants although sometimes better for bar business for the duration. I prefer qualify then finals. You finals is when you'll want the complete outside judging. Always allow contestants to see final judging sheets - hidden sheets looks like it's rigged (not that you won't get these people anyway that will think it if they don't win). Offer the outside judges at least a meal & drink either during or after. If you have a large contestant base, you may need to take a break halfway through. Our biggest contest we had 42 contestants competing for $1000 cash, $500 2nd & $250 3rd. Had to start the contest at 7:00 just to be done by 11.