You may not realize it, but having the right business phone system can drastically improve your business.
Most people don’t immediately think of investing in a new business phone system as a way to grow their business, but the reality is, a quality, modern, VoIP (Voice over Internet Protocol) phone system can be a game-changer.
The average savings businesses see after switching to a VoIP system range anywhere from 50% to 75%.
But many businesses are confused by all the jargon and tech talk around phone systems. You may be in the same boat.
Maybe you’ve thought:
“How do I even start the process of upgrading my business phone system?”
“What do I need to know before investing in a new business phone system?”
“What are the different types of business phone systems?”
“Which business phone system is right for my business?”
“How much does a new business phone system cost?”
It can definitely feel overwhelming trying to go it alone, but this article will walk you through all of the necessary questions you’re either already asking or should be asking.
By the end of this article, you’ll know:
- How a business phone system can improve your business
- Which type of phone system is best for your business
- What to look for when considering upgrading your business phone system
- How much you can expect to pay for a new business phone system
But before we jump into all that, it’s important to understand how business phone systems work in the first place. Without that basic understanding, you’ll find yourself struggling to see the difference between the different phone system options.
So here’s a very quick overview of how business phone systems (and phone systems in general) work and how they’ve evolved into what they are today.
How Business Phone Systems Work
When telephones first started being used by the general public over a hundred years ago, each phone had a physical phone line running from it to a central location. That central location had a switchboard and an operator (or group of operators) who would route calls as they came in. Callers would pick up their phones, tell the operator who they were trying to reach, and the operator would manually put them through to that person.
That process or system was what was called a Public Switched Telephone Network (PSTN). It was a tedious form of communication, but it was functional for the time.
Later, touch tone buttons were used on telephones, eliminating the need for a third-party operator. No more manually plugging lines in to connect two phones. This process was instead done digitally, and we still call it a PSTN to this day.
Fast-forward to the 1990s, and a company called VocalTec created a transceiver that ultimately enabled the possibility of internet phone service.
So why does any of that matter?
That meant that phone systems no longer required traditional phone lines, and it led to what we now call Voice over Internet Protocol (VoIP).
As the Internet grew in popularity, and as broadband internet began to replace dial-up, VoIP technology also became more useful and popular. In the late 1990s, Digium’s founder Mark Spencer developed an open source software called Asterisk that essentially made VoIP phone systems accessible to businesses of all sizes, and it sparked widespread interest and adoption among developers and entrepreneurs alike.
Since then, companies like Skype, Google, and Apple have utilized VoIP technology to build popular consumer products that forever changed the world of communication.
So that leaves modern businesses with two basic choices when it comes to their phone systems:
- You can have a traditional phone system with physical, PSTN (Analog, T1/PRI) or
- You can have a VoIP phone system that utilizes modern data networks and communicates using Internet Protocol (IP).
In this article, we’ll go over each of the two main options for business phone systems (traditional and VoIP). We’ll look at the options for each approach as well as the pros and cons when it comes to features, benefits, pricing, and more.
Let’s start by looking at a few things you should look for when you’re considering investing in a new business phone system.
What to look for in a business phone system
When you’re thinking about investing in something as important as a business phone system, there are a handful of questions you absolutely must be prepared to ask. Here are a few categories of things to think about when looking for a business phone system:
The first and most important aspect to consider is understanding which features are offered. Many hosted phone providers don’t offer the same features in their hosted product as they do for their premises-based solution.
If critical business phone system features like call queues, IVRs and conferencing are missing or cost extra, then the product may not be the right solution.
Ideally, a cloud phone system offering should come with all UC features included so you don’t have to worry about lack of features when choosing a cloud solution.
Hosted VoIP solutions have a low upfront cost and are typically charged as a monthly fee per user. Using an on-site VoIP server has a higher cost upfront, but then no recurring monthly fee. Above a certain threshold, it becomes more cost effective to purchase your own equipment than to pay a monthly fee.
Hosted VoIP tends to be the most attractive for businesses with 5 to 15 employees. However, many large businesses with 100 or more users often choose a cloud phone system due to other advantages. It is always best to speak with a knowledgeable VoIP specialist who can help you weigh the unique aspects of your business to help you decide.
Total Cost of Ownership
A cloud phone system can often have a very low total cost of ownership due to the savings in IT personnel and because your hosted provider takes care of server configuration and maintenance. Depending on the size and structure of your business, this can be an advantage of hosted VoIP over premises-based VoIP.
Consider your current technology infrastructure. Are you using an aged system to connect your phones to the Public Switched Telephone Network (PSTN)? Legacy connections like Time Division Multiplexing (TDM) can be expensive. You could see significant cost savings by switching to a VoIP trunk or by using a hosted PBX.
To help you determine what these savings might look like and if it’s worth the switch, use this online VoIP cost calculator to learn what your Return On Investment (ROI) savings will be. On the other hand, if you like to keep your existing TDM or POTS lines, then a premises-based solution with telephony interface cards will be the best way to go.
Consider how your business may grow in the coming year. If there is potential for rapid growth you will need to consider how this will impact your purchase. If going with a premises-based solution, you will likely want to purchase a larger appliance than is initially needed to accommodate growth.
With hosted VoIP, new users can be added to the cloud phone system as needed. A unique advantage of Digium’s hosted UC solution is the fact that the same software is running on both the cloud version and the on-site, premises-based version. This makes it easy to migrate between platforms.
You’ll also want to think about how difficult it might be to reverse should you want to go back.
Regardless of whether your existing phone system is a premises-based or cloud solution, when considering a move to a new business phone system it’s smart to ask if the transition is reversible.
For example, if you were to change from an on-premise solution to a cloud-based solution, you might think the lack of control over your company’s IT infrastructure is a hindrance. Every business is different, so what may be a great benefit for one business could become a detriment for another.
Sadly, most hosted providers do not offer a migration path back to an on-premises solution once the transition is complete. A truly flexible solution allows you to move between on-premises, to hosted, to on-premises, and back again, seamlessly and with minimal friction.
Natural disasters and other unforeseen events can wreak havoc on any business, anytime. In today’s business environment, it’s a necessity to have a thorough disaster recovery and contingency plan.
When your business communications go down, the cost is high, not only in terms of lost productivity, but also in lost reputation and sales when your customers can’t get in touch with you.
Even for a small business, building redundancy into your IT infrastructure is critical.
For on-site solutions this typically entails purchasing extra failover hardware (or backup equipment) in anticipation of an emergency. Hosted solutions could provide the answer because when your phone system is in the cloud it can keep your communications up and going even when your main facility is inoperable.
A reputable hosted provider should at a minimum provide power, network infrastructure and carrier connectivity redundancy.
Outsourcing your IT to the wrong partner can bring with it serious security implications. However, if you choose a reputable hosted provider they will have the resources to keep your data secure.
Smaller businesses may find that a hosted provider does a better job of keeping data secure primarily because of the dedicated pool of resources the provider invests in keeping all of their clients’ data safe. However if your business must comply with security regulations that require data to be stored on-site, then a hosted solution is probably not the best solution.
One survey found that 43% of employed Americans spend at least some time working remotely and 31% reported working remotely four to five days a week. In other words, more and more people are working away from the physical office, so possesing a business phone system that caters to the increasingly-remote mentality could help your business a lot.
VoIP phone systems have a bit of an edge when it comes to mobility. After all, they use the Internet to make a receive calls, which means they’re inherently more mobile-friendly. They’ll also often come with softphone apps that make it easy to connect directly from a personal mobile device while outside of the office.
Softphone apps make it look on the caller ID like you’re in the office regardless of where you really are. This ensures that you’re maintaining a professional appearance and feel while also protecting the brand of your company.
Having insights and data behind who your callers are and the actions they take is an essential part to learning and growing as a company, and a quality phone system should give you the ability to see reports that give you that information.
Types of business phone systems
As we mentioned earlier, there are two basic types of business phone systems. There are phone systems that run off PSTN lines that are physically located in each office, and there are phone systems that run off IP using your data network or the Internet.
In this section, we’re going to take an in-depth look at each of the two types of business phone systems and how they differ by comparing the benefits and features of each.
Voice over Internet Protocol (VoIP) is the transmission of phone calls over the Internet, instead of using traditional telephone landlines.
VoIP enables businesses to:
- Eliminate the need to pay a phone company for traditional phone lines
- Save a ton on their phone bills
- Reduce their IT infrastructure and resources
- Use advanced features that aren’t available with traditional business phone systems
One of the main advantages that VoIP offers is considerable cost savings. Calls themselves are often free, so that inherently saves money, but VoIP also allows businesses to reduce their IT infrastructure, which further saves them money.
Another advantage of VoIP is what’s called Unified Communications (UC) features. Basically Unified Communications allows you to use your phone system to do more than just talk – you can also integrate chat, conferencing, mobility, fax and more, all into one system.
Check out our What is VoIP page to learn more about how VoIP works.
How a VoIP Business Phone System Can Improve Your Business
As we’ve mentioned, VoIP phone systems tend to be much less expensive than traditional systems for both local and long distance calling. Cloud-based VoIP phone systems can save even more money, because they require less hardware, setup costs, and upfront capital expenditures that on-premise and more traditional phone systems.
VoIP phone systems are capable of being accessed anywhere there is an internet connection. Many VoIP providers offer a mobile app that allows you to use your business phone from your mobile device, allowing you to make and receive calls from anywhere as if you’re still sitting in your office.
VoIP phone systems, particularly cloud-based VoIP phone systems, have the ability to easily expand or contract with your organization. Because VoIP uses your internet connection instead of physical phone lines, resources can often be added or reduced without the hassle, making transition periods a breeze for your business.
Better call routing and screening
VoIP phone system auto attendants answer calls and route them to the appropriate location, saving you time, money, and frustration, all while looking more professional in the process.
Features like “Find Me Follow Me” let you route your calls to several different locations in order to “find you” before sending a caller to voicemail. When your callers are sent to your voicemail, VoIP phone systems have the capability of transcribing that voicemail and being sent to you in the form of an email so you can immediately see who called and what they said.
Better internal communication
VoIP enables you to spend less time trying to communicate, and more time spent actually communicating. For example, Status Indicators allow team members to see who’s available and who’s not, Chat features allow direct and instant lines of communication among your team, and training tools allow you to listen in and/or step into individual conversations when needed.
Call reporting and insight
VoIP phone systems let you integrate your calls with your business’s customer relationship management software (CRM), allowing you to get better insights into who is calling and what actions they’re taking before and after your call.
Types of VoIP phone systems
Here’s a side-by-side comparison that should help you see the difference between the three VoIP business phone system options:
Hosted (or Cloud) Phone System
A hosted system is a VoIP business phone system where your phones connect through your Internet connection to a provider that maintains the equipment at an off-site “cloud” data center.
Any size business that wants to conserve IT dollars; or a small business or start-up that does not have in-house IT resources
Hosted phone systems should come with all UC features such as Call control, Collaboration, Mobility, Call management, Voicemail, Messaging, Contacts, Web-based management, Call training, Integrations, Contact center, and Analytics.
Hosted phone systems inherently come with lower setup costs than on-premise systems. They also come with no maintenance costs, which is huge for businesses who want to avoid having to staff or outsource IT work. It also helps businesses trying to control their recurring overhead expenses.
One potential downside to hosted phone systems is that, because you’re paying monthly, your ongoing service could become cost-prohibitive depending on the resources needed.
With a hosted phone system, your provider shoulders all the risk, work, and complexity. Also, because you’re not carrying the burden of housing and maintaining your phone system hardware, growth or retraction can happen quickly and software updates happen automatically so you always have an up-to-date system.
All the major software updates and maintenance processes are handled by the provider. And as we mentioned in the “cost” section, hosted phone systems require no maintenance on your end, which allows you to spend IT resources on other revenue-generating tasks.
The downside of this is, of course, is that your service provider has the actual control over your system, which may or may not be an issue for you.
One of the best things about hosted phone systems is the flexibility they offer. Hosted (cloud) service providers have the resources to implement a solution that you might not be able to afford to do just for yourself. This gives small businesses the flexibility to have enterprise-level phone systems for a fraction of the price.
The downside to consider is that cloud options do not scale to large deployments in a cost-effective way. In other words, once you grow beyond a certain point, hosted phone systems start making less sense financially.
When it comes to implementation, hosted phone systems are usually very cost-effective, quick, and easy to get off the ground. That means less dependency is required for in-house IT resources.
One thing to consider with a hosted or cloud deployment is that training is usually required for users, and it may or may not be offered by your solution provider.
On Premise Phone System
An on-premise VoIP business phone system is one where the hardware is kept on-site in your server closet.
SMBs or enterprises with available IT resources and have the need for control over their business phone system, or want a more customized solution
On-premise phone systems also should come with all UC features such as Call control, Collaboration, Mobility, Call management, Voicemail, Messaging, Contacts, Web-based management, Call training, Integrations, Contact center, and Analytics.
On-premise systems typically cost more to set up and they come with unknown long-term maintenance and support costs. However, there is also no risk of fee increases and they offer a lower total cost of ownership, especially as the system grows.
With on-premise systems, you have complete control and flexibility—you can even switch
solutions or mix-and-match. Just remember, every expansion increases the complexity of your phone system, and with on premise, you have to manage it yourself.
With on-premise phone systems, you have complete control over every detail. An easy-to-use solution with careful management will give you a solution that matches your needs better than
anything else can.
On the flipside, though, all software updates and maintenance processes must either be done by internal IT staff or outsourced for completion.
Since you house and maintain the hardware for an on-premise system, you can ultimately do what you want with your equipment.
On the other hand, you may not have enough internal IT resources or the budget to make
complex, expensive or highly customized changes.
Deployment time for on-premise phone systems may take longer than hosted phone systems, and training is typically required for users as well. This training may or may not be offered by your solution provider.
However, with on-premise phone systems, you will know your system’s capabilities since you are handling the deployment.
|Want to know whether hosted or on-premises is better for you? Take a quick look at our free webinar “Hosted or Premises-based Phone Systems: Which VoIP Solution is Right for Your Business?”|
A virtualized businessphone system is basically an on-premise VoIP phone system, except instead of having one server for each technology used within a business, virtualization allows you to use one server with virtualization software that is capable of running multiple applications and operating systems at the same time on that one server.
Virtualization has traditionally only made sense for large businesses and corporations, but virtualization software like VMWare has made virtualization plausible for businesses and organizations of all sizes.
In fact, one study found that over 54% of SMBs use virtualization to manage their IT infrastructure.
Because virtualization typically optimize and improve on-premise systems, a lot of the features and benefits are the same as on-premise phone systems. However, there are a few important additional benefits offered by virtualization:
One of the main benefits of virtualization is the amount of money it can save businesses. For example, you may have an individual server dedicated to call control, one for mobility, one for voicemail, and so on. As you can imagine, these individual servers result in unnecessary cost, wasted space, and unused resources. Virtualization allows you to consolidate all of those individual servers into one, saving you significant amounts of money, resources, and complexity.
If you already have a virtual environment, you can also save money by finding a phone system that supports virtualization and therefore eliminates the need for costly, dedicated voice appliances.
IT Simplicity and Flexibility
Another benefit to having a virtualized phone system is the reduced complexity and implementation time. As we’ve mentioned, having all of your business applications on one server saves you money, but it also simplifies your IT infrastructure. The result is less time spent maintaining and repairing IT hardware and more time doing what’s important in your business.
For instance, one study found that virtualized companies gain over 67% in
productivity and spend 26% less time troubleshooting issues.
In a “non-virtual” setup, vendor-specific hardware is used with pre-tested limits on the number of calls and users. When you exceed those limits, you’ll have to upgrade to more capable hardware. Then, if for any reason you scale back down, you’ll be wasting resources with unnecessary hardware.
Virtualization enables businesses to control their resources themselves by allowing them to distribute and adjust resources as necessary. That means you don’t have to worry about outgrowing your phone system or wasting money by paying for more than you need.
Power savings (Going Green)
Another downside to having a traditional business phone system with multiple servers and excessive hardware is the excessive energy consumption that goes along with it. Since virtualization drastically decreases the amount of hardware on-site, it can also decrease energy consumption – sometimes by as much as 50-70%.
Improved uptime and disaster recovery
Without virtualization, companies who wanted to protect against phone system downtime had to purchase costly backup servers that often still didn’t meet uptime requirements. Virtualization typically includes features such as live migration, high-availability, and storage migration, all of which keep applications running in the event of a hardware failure. In fact, one study found a 36% decrease in downtime for companies who virtualize their infrastructure.
Virtualization also makes disaster recovery easier by enabling businesses to utilize off-site data centers in the event of an outage. This makes managing systems easier on your IT staff, as they can move them on and off-site as needed hassle-free.
Traditional Business Phone Systems
A traditional business phone system, also often called a “landline” or “legacy” phone system, is a phone system that operates using PSTN.
Businesses with existing analog phone lines/landline service who don’t have the network capabilities to implement VoIP and are not ready to upgrade their Internet service to do so.
Traditional or landline phone systems offer some of the features that VoIP phone systems offer, but they are definitely lacking in certain areas. For example, traditional phone systems typically do not come with advanced call routing, softphone or mobile capabilities, or third-party integrations.
Some businesses already have the necessary phone lines installed in their place of business, and if you already have the phone lines installed, your initial cost can be minimized.
However, month-to-month landline service is typically expensive compared to VoIP, and adding service can be costly as well. Also, replacing legacy phone system components can be time-consuming and ridiculously expensive, especially when the platform goes EOL (end of life, meaning the vendor stops supporting it).
Traditional business phone systems rely on physical (analog) phone lines, and installing new phone lines can be a hassle and a financial burden should you decide down the road you want to add service.
With traditional business phone systems, you maintain control over your system and its features. Of course, that control typically comes with maintenance and repair costs, but if you have the IT staff to manage things, this won’t be an issue.
Traditional business phone systems are known for being reliable because they use dedicated landlines to connect. Typically the only time a dedicated PSTN circuit goes down is if it is physically cut during excavation.
If you have existing phone lines ran in your office, your initial investment can be minimized. Also, if you do not have the necessary high-speed internet requirements and do not have plans to upgrade your internet, traditional phone systems may offer the benefit of being able to work around that limitation.
Business phone system pricing
Business phone system pricing is a difficult thing to determine without first getting a few details about the business looking to use it, but there are a few general guidelines you can go by to get an idea as to how much you can expect to invest in each of the main types of phone systems.
VoIP Phone System Pricing
The best way to help you get a better picture of VoIP business phone system pricing is to use our ROI Calculator tool. We built this tool to help organizations better estimate the cost of a business phone system for their specific situation. This tool eliminates the need to over or under-estimate prices based on generalities.
To see how much a VoIP phone system could cost for your specific business needs, take a look at our free ROI Calculator.