Who says it doesn't pay to be nice? Iris Harrell of $2-million Harrell Remodeling , in Menlo Park, Calif., thinks that her thoughtfulness is one reason 72% of the company's revenues last year came from previous customers and referrals. Harrell spends 70% of her marketing budget (her entire marketing budget is just .7% of sales) on low-cost goodwill efforts that encourage repeat business and generate referrals. For example, two-thirds of the way into projects involving kitchen remodeling, she sends customers a gift certificate for dinner, along with a handwritten note apologizing for the inconvenience of having their kitchens ripped apart. She budgets about $1,500 a year for gift certificates to nearby restaurants.

"It's really about creating a positive presence in the community," says Harrell, who appeals to customers' neighbors by sending "Pardon our dust " letters to everyone who lives near a client site. The letters ask the neighbors to call if there are any noise, trash, or parking problems. Recently, three homeowners who lived on the same street did call. Instead of complaining, they asked Harrell to bid on their own remodeling projects. All three had been referred to her by their neighbors -- four past customers of Harrell's.