1) If the party kid is 5 and under, always go with an hour and a half. These kids are very young and their attention span is short. If you want to leave it open that your good friends stay around after the party and the kids can watch a show or play independently in the basement after most people have gone home, fine. But do not put cake – the standard final event at a party – outside of the hour and a half.
2) If the party kid is between 6 and 8, the party can either be an hour and a half or two hours. The kids can handle either time span, it really depends on what you are doing, what you have paid for, and what food you are serving. If you have only one small art project, not serving a meal, and have 30 7 year olds in your home, go with the shorter option. If the seven year olds have a full schedule of crafts and games, you are serving lunch too, and there are 15 ofthem, if will be more fun and less rushed to use the full two hours.
3) if the party kid is 9 or above, then a two, or even three hour party is appropriate. Crafts, games, and activities can be longer and more focused. The kids will also just need some time to hang out. Most organized activities will be two hours with food time, then, if you want, put on a movie, let the kids listen to music, or just talk. The older they are, the less likely they are to be getting into trouble or running crazily all over your house.
The length of the party is dependant on mostly the age of the kids, but also, take into consideration the amount and type of structured activities, whether you are serving food, what is included in what you paid for, and number of kids to space. In the end, do what feels best for you – parties are supposed to be fun!