If you want to be able to perform point in time restores, you should set it to full recovery mode.

That depends on its size and modification load.

I wouldn't do a defferential backup, because a differential backup will need to read the whole datapages of your dabase !

I would prefer making incremental LOG backups.

Check out "Backup log" in books online.

The scenario I install by default for a database is:

1) every x hours an incremental logbackup. (x depends on the load and the SLA of the database)

2) every x days a full backup

The way it works:

3 jobs:

A) dbnameFULL following steps for each db:

1) BACKUP LOG [Db] TO [DbLog] WITH NOINIT , NOUNLOAD , NAME = 'Db_Log', SKIP , STATS = 10, DESCRIPTION = 'Full Backup' , NOFORMAT

2) BACKUP DATABASE [Db] TO [DbFULL] WITH INIT , NOUNLOAD , NAME = 'Db_Log', SKIP , STATS = 10, DESCRIPTION = 'Log Backup' , NOFORMAT

B) dbnameLog_Incremental following step for each db:

1) BACKUP LOG [Db] TO [DbLog] WITH NOINIT , NOUNLOAD , NAME = 'Db_Log', SKIP , STATS = 10, DESCRIPTION = 'Log Backup' , NOFORMAT

C) dbnameLog_Init following step for each db:

1) BACKUP LOG [Db] TO [DbLog] WITH INIT , NOUNLOAD , NAME = 'Db_Log', SKIP , STATS = 10, DESCRIPTION = 'Log Backup' , NOFORMAT

Every job copies the .Bak files to its own safe zone.

How it works:

- Job dbnameFULL starts with disabling dbnameLog_Incremental renaming it to "BU_PROC_Disabled_dbnameLog_Incremental". (The rename is done just to keep track the backup sequence is on going)

Right before its last step, it sets the next run-time for the dbnameLog_Init job

as last step , it copies all bak.files to its own safe zone.

- Job dbnameLog_Init has a "run only once" schedule that is being modified by dbnameFull job.

Job dbnameLog_Init makes LOG backups (using the with INI parameter)

Before it copies the bak files to its own safe zone, it enables (and renames back to original) the BU_PROC_Disabled_dbnameLog_Incremental job.

-edited-

We only shrink files if we run out of space or after we planned a huge data cleanup (and don't expect teh data to grow within a reasonable periode of time !

Because of the frequent log backups, the log file(s) shouldn't grow that much, unless someone performes an exceptional huge transaction)