You should also encourage 'after hours' trips to the pub etc, so the students are friends.
This is a very good point Tim.
In the past I have had quite a large age difference between students. The younger ones who have come along usually have done so with a friend, unfortunately it often seems that only one of the two is actually interested and when the non-interested party no longer wishes to 'try it out' then you lose the one who was keen too unless they have made other friends within the dojo.
I think it's important for instructors and students to have a closer relationship than is often the case in modern dojo where people turn up, participate and then go home straight after training. With smaller groups there's really no excuse for this not to be the case. It was actually one of my students that encouraged a pub visit after training and I think it has helped a lot. If people have any issues they seem more at ease to raise them over a beer and in a less formal setting than the dojo. They also have chance to get to know each other and make new friends.
I don't agree with being rude or condescending toward people though. I've been training a long time and I'm very dedicated but I won't take unnecessary rudeness from people, I too would walk away...
Looking back I've probably lost some students by emulating other teachers when I first began instructing rather than doing things my way and from my own experience. I guess the transition from being a practitioner to an instructor isn't always easy and is another skill which we have to work at if we want to improve.
I also no longer encourage new people, as Torashin writes above, it never seems to work out. We have a website
and various free listings online so people can find us if they should be inclined to look and that seems to work quite well.