Be creative with it. You don't just have to do a bust shot. I do several different styles of badges...polaroid picture style badges, cartoon, full body, etc. I've kind of been toying with the idea of making some that just show the character from the waist down instead of from the waist up!
But bust shots are the most common and it makes it easier to recognize the character and everything.
Also, if you want it to fit into a badge holder, I believe most badge holders are 2x3" roundabouts.
I have a personal laminator, so my large badges are 4"x6". I bought some driver's license sized laminator sheets that are 10mil that will only fit 2"x3". I discount the smaller ones since it takes less time.