IIUC, I had a similar difficulty trying to package a plugin for FARR.
What I ended up doing was to have an initial step of cd-ing in to the folder containing what I wanted to have compressed (as mentioned by SirSmiley) and also to have the resulting file created outside of the folder containing the contents to be compressed. What follows is a sketch with some details.
If "test" is the name of the folder containing things to compress, the following is the sort of command line that worked for my case (assuming I run the command in the parent folder of "test"):
cd test && 7z.exe a -tzip ..\test.zip -r .\*
To verify the results, I used the Open menu item in the File menu of 7-zip File Manager on the test.zip file -- I also extracted the test.zip file using the "7-zip" -> "Extract Here" menu item from the Windows Explorer context menu successfully. The version of 7-zip I am using appears to be 4.5.7.
I tried basically what SirSmiley mentioned w/ success too:
c:\test>7za.exe a test.7z -r *
The result was a test.7z file in my C:\test folder -- I also verified its contents using the two methods mentioned above.