I don't know to what extent you concentrate on getting people dancing, but at a recent gig I actually started tracking this number:
Four seconds.
That's how long it takes for a dance floor to clear when a song stops. If you want to keep people dancing, then after four seconds you need to pull them back out, or else keep them going within that time frame.
All of which is to say, I think you're absolutely thinking in the right direction. Quick and smooth transitions can make or break a gig.
The main suggestions I would have are - first, if you're able to, put songs on the list that can easily segue into each other. It's a pretty easy skip from Play that Funky Music to Superstition, for instance, or from Sweet Home Chicago to Almost.
Second, look for songs where there's an intro riff or beat that you can start right away when the prior song ends and loop as needed until the whole band is ready to jump in. For instance, when Six Cowards did Take Me Out, I would just hit those high pumping eighth notes on E and the drummer would start ticking his high hat to it. The guitarist, who also sang lead on that song, often needed a moment to adjust of whatever the previous song was, but we could just keep pumping those eighths till he came in.
Third, kinda related to that, any given member of the band ought to be ready to vamp or jam a bit, with a groove, whenever needed, and the BL should be alert to signal for them to do it. As I said, you have four seconds. A song ends, and if the BL sees that the band isn't ready to start the next one within a second, then they should wave in one of you to start SOME kind of groove.
Fourth, a personal opinion - don't overuse big long rolling out ending notes. They can signal applause and be very gratifying. But they also signal to the crowd that the song is over, time to go back to your seats or get another drink at the bar. Your four seconds begin already DURING that ending. I've seen times we've hit the ending like that, there are cheers and claps, and yet by the time we stop playing the floor is ALREADY empty. Often, especially if you've been playing a great dance song and filling the floor, if the song ends on a sudden tight hit, people are cheering and applauding during the space and MORE likely to stay, because they're thinking "what's next?"
