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Do you need SEO, or do you need SEM?
The line between the two can be somewhat blurry, but the terms mean:
Search Engine Optimization
and
Search Engine Marketing
The best definition I’ve heard was that Search Engine Optimization are tactics you use to optimize the search engine indexing of your site – that means tags, content optimization, clean code, etc. Search Engine Marketing is marketing strategies that enhance the amount of traffic that comes in from search engines.
One source seemed to think the difference was whether you pay for it or not. But that is less accurate, because you may pay or not for SEO, you may pay or not for SEM.
SEM, then, would include backlinks, PPC, directory listings (paid or not), optimized anchor text in off-site links, and anything else you do off of your site to enhance the amount of traffic from the search engines.
For many small businesses, these two forms of encouraging traffic, if done by someone who knows their stuff (and who knows how to get the most bang for your limited bucks), are highly effective ad dollars. They can also be a huge sucking hole in your budget if the wrong methods are chosen, or if they are done badly.