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First of all, what type of business are you in? If you offer design, web, etc. then SEO IMO is useless. I would rather use that money to hire some college student to help generate some business. Maybe pay them $50 per new client. They'll eat that up and find you some great clients because they need the cash. It's expensive to go to school these days.
If you offer products where people go to your site and buy, then SEO makes more sense and then you are better off using something like shopping.com or another service like that where you will get listed and pay per lead.
It all depends on the products/services you offer. If you're a coffee shop, why would I want to go to your site other than to get directions or store hours.
Another option is to throw a little get together and invite local companies that could use your services and/or products. Face to face is much more effective than PPC/SEO. I go to 4 networking events a month and I always come back with 30 or so new business cards and usually get 4 or 5 clients per event. The key it go after them and not wait for them to come to you. Be aggressive but not pushy and never, ever sound desperate.
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