Single site vs Multiple Sites when targeting multiple local keywords?

Hi,

Just trying to help out a friend though I am unfamiliar with the niche and not that familiar with offline peculiarities either.

She runs a clothes shop, it is well established in its locality and has been consistently at number one on Google for its main keyword, let's call it "prom dresses" though this is not the main term.

Lately she is noticing that more and more people are looking for specific designers and obviously more targeted searches usually mean better conversions. So she is considering abandoning altogether the SEO effort for main keyword and concentrating on the various designers. For me this does not make sense as I'd rather not lose that number one spot for the niche and I would develop either separate sites or sub-sites to target the more specific terms. (Plus being within the fashion industry I would expect that designers come and go which is another reason why developing the main niche keywords seems more reasonable in terms of developing the business overall long term).

But there are budget constraints and the issue is really about most efficiently allocating the available funds.

So my question is - What is the best approach in above situation? That is, how to capture the traffic and sales from the smaller but more specific keywords while maintaining and further building the overall business?

Also - in case some professional SEO guys are reading this - How would you deal with a situation in which your client comes to you and says, "Look, my return does not justify my current expense on SEO even though we have held onto the number one spot in Google for years. What can we do? What can you advise me?" .... She is currently paying around $750 per month for SEO (which for me is way too high but as I said I do not know that niche at all).

One thing I have noticed is that they have no Social Media, so that's an obvious one to develop. Is it reasonable to expect/ask her SEO team to "throw in" Social Media services within above package? If it is, how long before any results show up?

Many thanks for any feedback,