I focus on one small business sector within 50 miles of my home. I send letters to the owners introducing my services and giving them reasons to have me set them up with a company website. I just keep hitting the same businesses again and again and again.

I just wonder how other web designers get customers?

I've worked for such a company - 3 or 4 freelancer worked together. There was one person who search for ugly websites on the Internet and the second person sent offer (e-mail or just call them). They were succesful at this. Not every time, but often.

That never occurred to me! Find bad sites and offer to redesign them. I think I'll give that a try. It's free. You can't beat free.

Try - you know, there are some institutions or firm that aren't aware of matter of having own good website. They have website made few (e.g. 10...) years ago and have no updating Some of them have already site in prepare - that is most annoying while calling.
Good luck