Hosted vs On-Premise: How to Choose Between an On-Premises and Hosted VoIP PBX

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Voice Over IP (VoIP) telephones are popular options for modern businesses, and they can offer huge advantages.

For example, in one survey, businesses who had access to modern phone system features (such as with a Unified Communications solution) reported a 49% increase in productivity.

But buying a VoIP phone system can be challenging.

One critical decision that must be made is determining which is better for your business:

  • A premises-based solution (in which the hardware is kept on-site in your server closet),
  • Or a cloud phone system (where your phones connect through your Internet connection to a provider that maintains the equipment at an off-site “cloud” data center)

Educating yourself on the benefits and potential challenges that come with using either a premises-based or cloud phone system can help you make a good decision to ensure your business needs are met and you get the greatest value for your investment.

Want to know whether hosted or on-premises is better for you? Check out our free guide to see which is best for your business.

Here’s a side-by-side comparison that should help you see the difference between the two options:

Hosted PBX

On Premises


Phone system where your phones connect through your Internet connection to a provider that maintains the equipment at an off-site “cloud” data center.

Phone system where the hardware is kept on-site in your server closet.

Comparing VoIP Features

All UC features included:

  • Call control
  • Collaboration
  • Mobility
  • Call management
  • Voicemail
  • Messaging
  • Contacts
  • Web-based management
  • Call training
  • Integrations
  • Contact center
  • Analytics

All UC features included:

  • Call control
  • Collaboration
  • Mobility
  • Call management
  • Voicemail
  • Messaging
  • Contacts
  • Web-based management
  • Call training
  • Integrations
  • Contact center
  • Analytics

Cost of VoIP Services


  •  Lower setup cost
    No maintenance costs
    OPEX model


  • Potentially higher ongoing service

See hosted pricing


  • No risk of fee increases
  • Lower total cost of ownership especially as the system grows


  • Higher setup costs
    Unknown long-term maintenance and support costs

See on-premise pricing

Future Expansion


  • Your provider shoulders all the risk, work, and complexity
  • Growth or retraction can happen quickly
  • Software updates happen automatically so you always have an up-to-date system


  • (None)


  • You have complete control and flexibility—you can even switch
    solutions or mix-and-match


  • Every expansion increases the complexity you have to manage yourself



  •  All the major software updates and maintenance processes are handled by the provider
  •  Ability to spend IT resources on other revenue-generating tasks


  • Your service provider has the actual control over your system – you don’t


  • You have 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


  • All software updates and maintenance processes must be done by internal IT staff, or outsourced



  • Service provider may have more resources to implement a solution you could not afford to do just for yourself


  • Some Cloud options do not scale to large deployments in a cost-effective way


  • You can do what you want with your equipment—ultimate flexibility


  • You may not have enough internal IT resources or the budget to make
    complex, expensive or highly customized changes



  •  Cheap, quick, and easy
    Less dependency required for in-house IT resources


  • Training required for users, and may or may not be offered by your solution provider


  • You will know your system’s capabilities since you are handling deployment


  • - Deployment time may take longer
    - Training required for users, and may or may not be offered by your solution provider

Recommended For

Any size business that wants to conserve IT dollars; or a small business or start-up that does not have in-house IT resources

SMBs or enterprises with available IT resources and have the need for control over their phone system, or want a more customized solution

Hosted vs on premise VoIP

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Still deciding whether hosted or on-premises is better for your business? Our free guide will help you decide.

In addition to the table above, here are 9 factors to consider when purchasing a business phone system and trying to decide between hosted and on-premises solutions.

9 Factors to Consider When Purchasing a Business Phone System

1. Feature Costs

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 communications 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.

2. Upfront Cost of VoIP Services

Hosted VoIP solutions have a low upfront cost and are typically charged as a monthly fee per user. Using VoIP with an on-site 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 knowledgable VoIP specialist who can help you weigh the unique aspects of your business to help you decide.

3. Total Cost of Ownership (TCO)

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.

4. Existing Infrastructure

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 a 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.

5. Scalability

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 allows for seamless integration. Users at the main office can be on a dedicated server running on the premises in your IT closet while users at the remote office have their phones connected to the cloud. By peering the cloud instance to the on-site server users will have a uniform experience regardless of which technology they are connected to.

6. Revertibility (Can you go back?)

Regardless of whether your existing 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 revertible.

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.

7. Redundancy

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 maintain multiple data centers as part of their redundancy plans and as a way to keep call quality high by accessing a geographically close data center. Even if the vendor’s main data center goes down your communications can be routed through the redundant data center.

8. Security

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.

9. Getting Help

Once you have narrowed down your choices, it’s recommended that you contact each vendor to further qualify your choice. A professional assessment helps ensure you are getting the best value for your purchase.

If you’re working with companies that are reputable in the field of Unified Communications, then they should have a knowledgeable and accessible pre-sales team to help you navigate your options.

These days the unique nuances of each business make it difficult to offer generalized advice. A few questions to consider are:

  • Is your network VoIP capable?
  • Are you getting enough bandwidth from your Internet provider to properly connect to your UC provider?
  • Do you rely on unique technology that needs to integrate with your communications in order to make you effective?

A qualified VoIP specialist can help you choose the solution that’s right for you.

Making the Right VoIP Choice

Purchasing the right phone system is important for the success of your business. There are many factors that come into play when deciding between a premises-based and cloud VoIP phone system. Each has its strengths and weaknesses.

To make the best decision sign up for a free consultation with a Digium VoIP specialist.

They can provide you with additional information, tips, and advice regarding your communications needs to ensure you end up with with the best phone system for your business.

Check out our free guide "Hosted or Premises-based Phone Systems: Which VoIP Solution is Right for Your Business?" to know for sure whether hosted or on-premises is better for your business.

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