Elements of Guitar Teaching:
Timing is the name of the game. You have to schedule students at intervals. It is the worst part of the job (besides trying to get paid) @Pam is wrong (because you have to be able to quantify your value in some way, and clients can't just come to you whenever, they need a schedule too. If there is a schedule, there is often a required end time to the lesson.) but it is proof of how important timing is. Some times you want the student to go home early, and with others you may want them to stay another hour, and yet you are often stuck with a fixed time period regardless. You develop an internal clock and learn how long a half hour feels like. Maybe you need to set a timer to keep you straight. I am not saying you need to be stingy with your time, but I am saying that you don't always get a choice. You learn that some students like to talk and take up too much time and others just sit and listen and never seem engaged. You get saddled with a schedule, either that or you aren't making money. You cope with time. Time is your enemy. A lot of students think they are paying for time, but they are wrong. They are paying for coaching and knowledge. Still time rules everything you do as a teacher. It is your only tangible commodity.
Students are not just paying for a teacher. They are paying for a coach. Look for the week spots in your students musical abilities and find ways to get the student to work on them and improve them. Each student will have a different problem that they need to solve to get to the next level. It is your job to find that part, and find multiple ways to get the student to work on them. Sometimes you can find a way to make working on that problem fun. Other times you can trick the student into working on that problem by switching gears and working on a new piece or exercise. Sometimes you need to be direct. Use your cleverness to inspire and motivate your students to work on the things that they would otherwise ignore.
I say that you need the following guitar skills in order to be effective. These should be skills that you want to impart to your students:
- Rhythm guitar: You must know around 30 different chords in the open position. You must know the basic strumming pattern(s) (I assert there are not very many, and one will do if it is the right one.). Consider learning Travis Picking (a popular finger picking style). You should also be able to handle almost any bar chord. You should also know how to play power chords with ease. Consider learning jazz chords, they are really cool. Freddy Green is the man.
- Scales: You must know the pentatonics. You must know your major scales, and the natural minor ones. You should consider knowing all the modes, harmonic and melodic minor, whole tone scales, exotic scales, and arpeggios.
- Reading Music Many guitar teachers teach guitar without teaching reading music. I say it is a must. Parents are paying you to teach their children the serious stuff, not just the fun stuff. If you are skipping the reading music there are some parents that will feel cheated if they ever find out. Just like reading text, reading music opens up worlds of musical knowledge and should not be avoided.
- Tablature Just because you teach sight reading, doesn't mean you should avoid tablature. Tablature is the lifeblood of the internet connected guitarist. Teach your students how to handle tablature, or your students will miss a world of knowledge just as vast and varied and rich as reading music. Give your students some examples that represent the imperfect tablature they will see on the internet so they know what is out there and how it can still be useful.
- Guitar maintenance and care This can easily be filled in. If you don't know enough, go guitar window shopping at 5 different shops and ask the sales man about guitar care and maintenance. 4 of them will mostly have good ideas about it.
- Optional specializations consider knowing the basics of major specializations: Jazz, Classical, Rock, Country, Blues, Slide, Finger Style, Folk, alternate tunings (Finger style, slide, folk, rock)
Standardize some lessons: Consider developing a list of songs that you can use to teach even to a beginner to sound cool. Have standard lessons memorized that teach songs that are easy but recognizable such as smoke on the water. I have met many kids who say they know guitar, but can only play that song. You student should be able to play some easy tunes like that as a beginner or playing guitar runs the risk of not being fun. Sometimes these are the songs that you pull out when you are facing a student who needs to be inspired and turned on.
Write Things Down: In most lessons most of your students will not remember much of your lesson when they leave your studio. Write down anything that you want your student to take away from the lesson and make sure they take it with them. Also write down their lesson assignments for the week. Include dates on every page so when they look back at when they learn something they can gauge how far they have come and how you have helped them get there; Or they can see what their lack of practice is costing them in terms of time. This is similar to what @Alex Basson is saying.
Neat Penmanship, or printed handouts: If your hand writing sucks, and you are constantly writing your ideas down to your students it is like entering a beauty contest after rubbing a balloon on your head so your hair sticks up the worst way possible. Find some way to combat your bad handwriting, if you have bad handwriting (like me).
Put your best foot forward: Develop a clear explanation of your teaching much in the same way that teachers in college hand out a syllabus on the first day. Explain your policies on the first lesson and reinforce it with a hand out. It will save you arguments later. Better to be clear and honest from the beginning. The students who will balk at reasonable lesson policies are the same students that are not committed.
Protect yourself If you are privately running a studio, present a simple contract to your students about rates, rights and responsibilities. It can be combined with the information from "Put your best foot forward" above. I recommend that you do this even when working for a store or school. Ordinarily I would not use this as a legal tool, but it is possible that in some cases there is no choice. Further, if you are running your own studio, invite the parents to be in the room with the lesson. This does two things, 1) There is no better way to prove that the lessons are indeed lessons, and valuable. 2) It makes communication with the parents more valuable and creates a stronger bond with your clients. 3) The parents who do sit through the lesson are protecting you in some small way from most false accusations of wrongdoing.
Kindness and responsibility: I do strongly support @bleakcabal's answer. I would add to that: Try to find ways to complement your students, especially when you can tell they do good work. Find ways to make it easy for them to practice and know what you want them to practice. Sometimes I found that having a simple form to fill in with practice assignments and the date was effective in helping me in a number of ways: It helped me remember what they were doing. It helped me remember their name (write their name on it). It helped the students know what was expected from them each practice that week.
Transcribe: While I would not require the skill of listening to music with the ability to quickly figure out the music and write it down, many students expect it, and it is a valuable skill. Don't take music home and transcribe it, do it in front of them. Let them see that it is a skill that can be learned. Show them how to play the piece as you figure it out. Encourage your students to figure out parts of the song that you didn't get to and bring it back with them the next week. Give them some guidance (hints) that will help them narrow the scope of possibilities and figure it out.
Catch Phrase: I had a catch phrase that I would say after each lesson that gave them a gentle push to practice and do well: it was something like: "Have a good week, practice every day and become a guitar genius." It was awkward for me to say at first, but I got to a point where I changed it every time while basically saying the same thing. Further, sometimes I would accidentally find myself saying it to people who were not students when leaving their presence. I also had the same way I would start a lesson that turned the catch phrase into a question: "Did you have a good week? Did you practice every day? You do know it's the same thing right?" "Are you a guitar genius yet?" I would always say something like "fantastic" or "awesome" to any positive response.
Other answers: There are some other good answers here. I would point out the following answers as extra valuable: @bleakcabal, @Neil Meyer, and @h22