In 2004, the average marketer using search ads and/or search engine optimization services, spent a whopping 36% of their online ad budget on it. (That's 15% of their total online/offline budget.)*

How much should you be budgeting to spend in 2005? We interviewed MarketingSherpa's Publisher Anne Holland...

-> How much should you spend on SEO?

"According to our estimates, marketers in the US spent only $238.5 million on optimization this year," says Holland. "That's tiny considering that the average Web site gets 73% more total traffic within six months of optimization."

Why aren't marketers spending more? Holland notes three factors:

#1. Do-it-yourself syndrome -- "People think they can do this in-house. Search engines have a vested interest in you *not* being able to figure out how to do this. Google and others have giant tech teams working on changes to the organic ranking systems so you can't jerry rig your site to win. And you think your webmaster can win against them?"

#2. Low-ball payments -- "A software marketer bragged to me last Wednesday that he spent top dollar on SEO for his 200+ page site. Turns out his budget was $12k a year. At most that's paying for 10 hours of SEO work per month. It's not coming close to covering the work that's needed."

#3. Painful experiences -- "When SEO hit the mainstream big time a couple of years ago, a lot of not-so-reputable folks swarmed out to grab accounts. Some firms had one techie and 15 sales reps. Clients got burned, and now they are shy."

Holland's recommendations for next year's budget -- "Absolutely budget more for SEO. At rock-bottom base you need $100-$500 per Web page. You may also need in-house training for your copywriters, and special software if your site has Java, Flash or a dynamic content management system.

"So few marketers are budgeting enough for SEO that it can be a massive competitive advantage for you still. Plus you can save on PPC ads."

-> How much should you spend on PPC search ads?

In 2004, US marketers are spending an estimated $3.3 billion on search PPC ads. Did you overspend this year?

"As long as you are measuring conversions carefully, and meeting your ROI goals, you're fine," notes Holland. Her tips:

Tip #1. Invest in three+ keyword terms. "Two-word terms are the most expensive to buy currently, but three-word terms are proven to do a better job of clicking and converting."

Tip #2. Budget for landing page tweaks. "If your headline has the exact search term the visitor used, conversions rocket upwards. There's loads of data on that. Plus, I've seen anecdotal data that if you use different landing pages for different engines such as a content-heavy one for MSN and a lite version for Google clicks, you'll do better."

Tip #3. Don't forget "white sales" from search ads. "You may not think a PPC campaign is working, but since almost 40% of US Net users clear cookies at least once a week, you're probably not tracking all the sales your search ad produced if they returned to buy later. Not to mention the value of brand awareness from non-clickers." You can add a "white sales" figure to your directly tracked search link sales of anything from 5-40% depending on the branding in your link.

Is it worth getting a specialist agency to handle PPC? "Yes, if PPC ads are important and you don't have devoted internal staff with great metrics software working on it," says Holland.

"Our data shows outside specialists are consistently more aggressive with bids, get better clicks and higher conversions. If you're not investing in this, you may be missing out on search-related revenues."

-> Should you hire an SEO specialist and a PPC specialist, or can you combine the two skills in one hire?

"This is the big question for 2005," says Holland. Her advice?

"Your search campaign is like building a house. You need specialists like a carpenter and a plumber, and they can't do each other's jobs remotely well. You also need a contractor to oversee both and make sure the work fits together under the same roof and in the same budget."

So, don't trust an agency rep who glibly says they can do both. Instead, ask to meet the specific specialists for yourself -- and make sure they are two different people in two different departments.

The bigger firms have enough resources to have two departments plus account reps to supervise everything. However, there's a bigger price tag for this convenience.

You may choose to be your own general contractor and hire two specialist firms instead. Just be sure to budget enough time in your 2005 schedule to manage them.

* Data included in this article is from MarketingSherpa's Search Metrics Guide 2004, featuring 169 charts of recent data from 3,007 surveyed marketers and 30 research sources.