Our approach is to offer a combination of on-site and offshore talent working together on software development projects. We have a few companies in Bay Area that are happy with the approach and results that they are getting. What should we do to find more local (SF Bay Area) customers?
I don't think you should be spending money on advertising. There is a faster and more direct way of getting more clients.
First consider the direction your development expertise is headed. Is there a trend? Have you used the structure you developed in a past project to give you "tilt-up" ability to kickstart the next? I worked for a developer who did this: the next project would build from the expertise developed in the previous one.
See how this guides your search for the next client? By intelligently planning out the progression of your expertise development, you filter potential clients by the problems they are experiencing. If they are in a situation that calls for the development of your solution, it's a fit. If not, you know immediately and quickly move on.
Direct conversations and referrals will be the fastest way to filter for these opportunities. "Do you have Problem X?" is all you have to ask, and as long as the prospect is being honest you will know in just a few minutes.
You can search for likely candidates...common size, industry; perhaps they typically buy something immediately before they realize they need a service like yours...
This is a way of creating a knife-edge focus to your business, instead of trying to be all things to all people and wallowing in the state of being a commodity developer. It's also much easier to get clients this way because it's ultra-clear who you are and what you do. But it takes thought, and as Henry Ford said, "Thinking is the hardest work there is, which is probably the reason why so few engage in it."