One of the main benefits of a chess club is that you get to play against players of your own level. Getting completely annihilated by stronger players over and over again is not going to motivate a lot of people to come back.
You need to organize some way of getting players of roughly similar levels to play each other so they win some games and have fun.
In my own experience, simple endgames tend to be the best choice for lessons for post-beginners (who know how the pieces move, their relative values and basic checkmates) since they (can be, if chosen correctly) aesthetically pleasing and simple enough to retain interest.
Also the idea of playing gambit trappy lines against novices is stupid: it only serves to end the game quickly and leaves for little instructive value other than "Oh yeah I know this line very well, you shouldn't have taken that second pawn I gambitted because...". It's always better to "get a game" and win slowly than to essay some dubious gambits on novices.
I offer free lessons at the chess club I frequent, to any new players who show up, young and old. Those very few who stick with it get very good, very quickly, but we have an extremely poor retention rate.
The main issue seems to be that all of the club regulars play at the A-level (none of us are Experts, but all of us have scored off Experts at tournaments), and play aggressive, attacking styles. There's no intermediate level, so novices lose quickly and repeatedly.
This past week, a youngster came in with his grandmother, and proceeded to lose the first two games in a total of 8 moves. I took notation, and explained the issues with his opening. I went on to explain the purpose of the opening (control of the center, development of minor pieces, castling to connect the rooks), and then the important checkmates to know (K&Q v. K, K&R v. K). We played two more games, which lasted 18 and 21 moves, respectively, still quick but considerably better. This seems to be typical of new players. They show up a few times, show promising signs of improvement, and then don't come back.
Now, part of it may be our fault. We don't hold back, ever. I want all our players to see creative attacking lines, and to take the first clear win they see. Most novice players last less than 10 moves the first time I play them (and no, I don't set up a scholar's mate on them). Our players are experienced with all forms of sacrificing lines, and play them. We lost one student after giving him a blindfold demonstration. This last one, in the last game, he fell for a queen sacrifice. Our tactics are sharp (meaning there's often only one way to defend), relatively deep (4-5 moves typically), and our openings (mine in particular) force the center to stay open, or at least semi-open. I don't believe in holding back because then you teach bad habits. It is easier to learn if you don't have to un-learn bad habits (I know this from my own experience).
We have taken players from raw novice to near Expert-level inside of two years. The club is not at all formal, talking over the board is normal, and post-game analysis is encouraged. But that seems to be the main problem - players either make the big step up or quickly give up. No one stays at the intermediate level long enough to bridge the gap between the novice and our own level.
Anyone out there with ideas on how to keep learners motivated, it would be greatly appreciated.