We picked a theme for each month, and people were free to do whatever they liked with it, since we have both quilters and knitters/crocheters in our group. For example, we had a sports theme one month, and some knitted in colors of local professional teams and some used sports fabrics. We also had themes of ocean, forest, spring, neutrals, etc. It worked well at first and then interest tapered off.
For a prize, we have decided that everyone who comes to a meeting gets a ticket for the drawing and those who bring a blanket(s) get a second ticket. We decided it wasn't fair to give as many tickets at blankets people brought because some members are retired and knit nonstop and others work and quilts take a bit longer. Our prizes were a big gift card, two small gift cards, and a basket of fabric and a basket of yarn.