I'm starting to teach now.
The plan:
1 hour lessons. First lesson, let them play, find their level, tell them the first things that youre going to work on, point them in the direction of things they need (for example one student, right off the bat, clearly needs to work hard on his timing, so I pointed him toward a good freeware metronome), probe their knowledge, and sort out what they need to know, the next step for them, and what they do know thats not imprinted well.
In the first lesson I give them a little A5 fileofax that will be filled with handouts. A5 so it can go in a guitar case.
Subesequently, I divide the lessons into 2 half hours: one me being horrible and dogmatic and making them learn whatever they need to learn, be it a piece of theory or a technique, with a little handout as a reminder of the key points of the lesson. These build over time.
Second half, I help them with a song of their choice.
Whatever style you choose, though, the most important things are to be pleasant, offer criticism constructively, do not brow-beat, at all, ever, and be free with praise where its due. I feel your job as a teacher is as much to build a mindset to learning as it is to give information, and that means building both a level-headed critical approach, and building confidence.
It also helps to be able to explain things in lots of different ways. and finally, be patient with them. We were all n00bs once.
Edit, oh and I dont recommend offering free lessons. Even if you have the best of intentions it gives the message that you lack confidence in your abilities and that the 'product' youre offering is poor. People think they're getting something good if they pay for it, so charge fairly, but dont not charge at all.