First off, you've made the right choice in asking for recommendations, it makes sense to use someone who comes with a thumbs up from happy customers.
However, don't just take one persons word for it, ask any company that you are thinking of using for telephone numbers of previous clients and be sure to check them out (yes, I'm aware it sounds a bit awkward but you may regret not doing it in the end). If they are genuinely happy customers then they won't mind in the least having a quick chat with you.
Costs are more a problem than generally realised. Don't automatically assume that the more expensive the service the better the work and equally don't brush off some of the cheaper end guys as there's likely to be some decent outfits who are bringing in some really good results simply through sheer hard work and determination even if they're fledgling concerns, everyone has to start off somewhere. Try to avoid the "sticking a pin in the Yellow Pages" scenario and help yourself by reading up on seo either through related books on Amazon or by going through posts in our seo forum until you feel more comfortable about what questions you need to ask your seo.
Last thing, you should expect full communication with your seo throughout the duration of your project and shouldn't be left in the dark with a load of hanging questions. Like everything else in life, work on developing a trustful working relationship with your seo as that's often the best way to get the best results, hopefully leading to a win-win situation for both of you.
Good luck.
Ray
