We've never really advertised (apart from the odd banner ad that we've got in exchange for hosting - no results there though) - all sales come from referrals. Like they say - keep a client happy and they might recommend you but give someone really poor service and on average they will tell 8 people to steer clear".
i would agree with referals. I dont have too many customers yet, but the ones i have tell their friends about it, and i keep getting numerous people contacting me, so and so's refered me. As long as they are happy, their going to tell their friends. Word of mouth is a very strong.