They use "make vs. buy" decisions like this to teach business decisions and analysis in business school because there are almost always multiple options and no clear choice. Companies bigger than yours use outside SEO sometimes, and companies much smaller use internal SEO. In my company, Palo Alto Software -- which has very good organic placement -- we've done SEO internally for 10 years now because we felt itsmission was critical and we wanted to keep our core competencies in-house. We now have 40 employees, but we had a full-time SEO specialist as an employee before we had 20 employees. Ultimately this depends on how you feel about risk, fixed vs. variable costs, and true expertise. There are no formulas. You have to make this choice for yourself.
Jon Rognerud is a recognized authority on SEO, who has spent more than 20 years creating and managing web and marketing projects from small to large companies, including positions at online giant Yahoo!. He is the founder of Chaosmap.com, a leading search marketing company in Los Angeles, CA. He plans, builds and delivers profit-making SEO, PPC and Social Media training, consulting as well as breakthrough speaking seminars. He also blogs on his website, http://www.jonrognerud.com