From the July 2010 issue of Entrepreneur

Every small-business owner knows that one way to inexpensively build a client base is to get referrals from satisfied clients. But how do you induce existing clients to refer new ones to you?

19% - Percentage of small businesses that expect to make capital outlays in the next three to six month

You should just ask. Business and marketing consultant Pinny Cohen in Fairlawn, N.J., points out that the people his clients refer tend to "match that client in outlook and perspective, so when a good client refers people, they are usually good clients. Make sure the person you're asking a referral from is your all-star client."

Cohen himself focuses on word-of-mouth referrals to help keep costs down. "My hourly rate has gone up over the years, but any one of my clients can refer another client to me, and I offer that new client the same grandfathered hourly rate as the referring client gets," he says. "Instead of spending on advertising--and I don't spend a penny--I'd rather pass on the savings to the customer."

Many entrepreneurs reward their clients for their referrals. Garde Robe, a luxury wardrobe storage service in New York, relies heavily on referrals. "New-business revenue generated by a member is automatically deducted from the existing member's account," says Doug Greenberg, the company's vice president of sales and marketing "If your monthly membership fee is $1,000 and you refer a new member who pays $1,000, your fees are comped for at least a month--or more, in some cases."

Some firms reward both the existing and the new customer. VoicePulse, a Voice over Internet protocol service provider, offers existing customers the opportunity to send an e-mail to their contacts with a referral code. If the referred person signs up for service, both customers get a credit to their accounts.

Other small-business owners offer gift certificates for items clients would enjoy--think house cleaning services, chocolates, flowers, spa days, theater tickets and the like.

Finally, don't forget one old-school incentive: a straightforward thank you.

"It sounds simple, but a handwritten thank you goes a long way," says Alexandra Mayzler, owner of Thinking Caps Tutoring in New York. "Incentive programs, especially in service industries, aren't always appropriate, and genuine thanks go a long way."