Find a venue. Depending on the size of the contest, the venue could be as small as your garage or as large as the town hall. Most public venues charge for their use; plan to charge an appropriate entrance fee for contestants and for the audience.
Obtain a good computer; you do not need a karaoke machine to have a karaoke party anymore. Look for karaoke music on websites that stream karaoke content (see link in Resources section). If your venue does not have the Internet, some websites allow you to buy or create your own karaoke CDs (see links in Resources section).
Obtain a video projector so you can project the computer screen onto a wall or whiteboard, allowing the audience as well as the contestant to see the video and lyrics.
Draw up the rules of the contest. Establish parameters such as how many songs will let each contestant sing, whether the contest will have a qualifying round. Score contestants on song difficulty and performance. Offer a mini prize for costume or crowd response, but keep the main contest professional.
Calculate how many people you think will turn up and which prizes you can provide. Talk to local businesses about donating prizes in exchange for free advertising at the event. One or more businesses may even be willing to sponsor it. Offer any business that takes part the chance to provide a judge.
Advertise your contest. Invite your local newspapers and radio services to attend the contest. They will be happy to cover it; a place on the judging committee might swell their egos as well. Create posters to hand out, and tell everyone; word of mouth works far better than advertisements. Use social media such as Twitter and Facebook. Create a Facebook event on your profile, and invite all your friends.