On-Premise Or Hosted Phones: Which Is Right For Your Business?
This is the primary debate when it comes to business phones today – do you know how the two options differ, and what makes one the better choice for you?
Are you frustrated with your business phones?
Despite the many other ways we can communicate today (e.g. video, email, text, IM), phones remain a primary form of communication for businesses worldwide. Your phones are probably used for sales, customer service, accounting and a myriad of internal conversations. As an example, a recent survey demonstrated that 94% of business’ marketing budgets are spent trying to get clients to call them on the phone.
At Core Vision, we help our clients improve their communications between employees and clients, in part by assisting with the selection of the right business phone system for their needs. When evaluating the options, the question often comes up as to which is better: a hosted phone service or an on-premise phone system? As each option has its own pros and cons, the purpose of this article is to help you determine which option will best suit your requirements.
It’s also important to note that while we help our clients with both hosted and on-premise options, Core Vision IT Solutions believes that on-premise systems are often a better option for many clients based on our clients’ experience. That said, we want to make sure you have the information you need to make the best choice for your business.
What is Voice over IP (VoIP)?
Before we dive into the different phone services, I want to provide a quick primer on VoIP as it’s a term that you’re likely to hear about during your evaluation. All modern phone systems (whether hosted or on-premise) use Voice over IP technology to send and receive calls over data networks, including the internet. It’s a technology that has been around for a few decades now, and has really become mainstream over the past 15 years.
The basic idea of VoIP is that voice calls are sent using your data network services, so think of your local office computer network and your internet connection. VoIP can refer to the data connection between the phone on your desk and your phone system (hosted or on-premise), or it can refer to the data connection from the phone system out to the rest of the phone network. You’ll also hear it referred to as IP Telephony, SIP Service, and Broadband Voice, which all fall under the umbrella of general VoIP technology. For a more detailed discussion to help you sleep through the night, here’s a good overview of VoIP from Wikipedia.
Now that you’re armed with a new acronym, let’s get back to the pros and cons of the phone services.
The Pros And Cons Of Hosted Phone Services
With hosted phone services, instead of installing a phone system on your site, a third party hosts a phone system at a remote data center in the cloud that your phones connect to over your internet connection (using VoIP). Typically you don’t own the phone system and it’s not dedicated to your business, but rather you rent part of a larger system that’s split off for your use.
The hosted phone service provider will manage the system, make any programming changes you need (like setting up auto attendants, setting up new users, etc.), manage your phone numbers and provide user support. For the actual phones on your desks, some providers include those in your monthly fee while others require you to purchase them up-front (typically $200-$300 each).
Advantages Of Hosted Phone Systems:
- Lower Initial Costs: With a hosted phone service, you don’t have to pay for any of the hardware or software licensing up front, except for possibly purchasing the phones. Typically, you’ll just pay a per-seat monthly rate based on the number of users, phones and features. Average service costs range from $25-$40 per user per month depending on the service and what’s included.
- Scalability And Flexibility: Adding additional phone lines and seats is often as simple as informing your provider, especially if you’re using employee mobile devices or work computers with headsets to make the calls. If you’re using desktop phones provided by the vendor, then you can add new users as quickly as it takes to get another phone from them and process the order.
- Outsourced Maintenance: With a third-party taking care of your hosted phone system, you and your staff never have to worry about upgrades, patches, or any other maintenance tasks. Those tasks happen offsite and after hours, keeping your systems up to date on an ongoing basis.
- Better Hosting Facilities: The major hosted phone service providers will keep their equipment at a robust data center with redundant internet connections, power and cooling. That normally provides a more reliable environment for the main phone system to keep your service up and running.
Disadvantages Of Hosted Phone Services:
- Variable Call Quality: With your phone system hosted in the cloud, the local phones on your desk use your internet connection to carry your voice conversations. That makes the reliability and quality of those calls directly dependent on the speed of your Internet connection. Additionally, other data traffic on your local network or Internet connection can also have a major impact on call quality – think large file transfers, video calls and cloud-hosted applications. Your call quality can also be affected by the service provider’s internet connection, how well they manage their equipment, and the general health of the internet itself. If you’ve made a Teams or Zoom call and had the video or audio freeze and stutter, you know how frustrating this can be. And if your customers and prospects have trouble understanding your team members when they call, it can negatively affect your business and reputation.
- Complicated And Delayed Support: When something goes wrong with your hosted phones, the complexity of the support chain can greatly delay a fix. You often need to reach out to multiple vendors – the hosted phone service provider, your internet service provider, your IT team, and possibly even the data center management company where the system is hosted. And each of these vendors is likely to blame someone else in the chain for the issue, leaving you with on-going call quality issues that affect your business.
- Increasing Cost Of Ownership: While the hosted phone service may have been cost-effective at the outset, the monthly service charges can really add up. And as your business grows over time you’ll require additional phones for new employees, costing you more and more. Over a typical service contract, these monthly charges will most likely cost you more than an on-premise alternative would have. For example, a 20-person hosted system will typically cost you $600/month or more … while a comparable on-premise system can be half that cost over the same period.
The Pros And Cons Of On-Premise Phone Systems
On-premise phone systems use the same technology as hosted systems, but the phone system is normally located in your office with other IT equipment. Clients typically own or lease the system and phones, then pay for phone services and ongoing support of the system. Phones connect to the main system using your local data network connection and VoIP technology.
To connect from your office to the rest of the phone network, the phone system can often use either VoIP/SIP services or traditional analog phone services. The VoIP/SIP services are provided by specialty service providers that are the bridge between the internet and the traditional phone network, while analog phone services are provided by companies like AT&T, TDS, Spectrum and Comcast.
Advantages Of On-Premise Phone Systems:
- Superior Call Quality: With your phone system installed directly at your place of business, you have a direct connection from your phones to the system which results in better call quality. Your IT staff can control the quality of service (QOS) on your local network, making it easier for you and your team to understand and be understood by the people you talk to on the phone every day.
- Ease Of Support: If something goes wrong with your on-premise system, support is a simple process for two key reasons:
- Your system is local and under your control. Your IT team has direct access to the system and local network because it’s installed at your place of business. There’s no need to work with a remote helpdesk and an offsite data center as you would with a hosted solution.
- There are fewer vendors involved. You only have to deal with the vendor that supports the phone system and your phone service provider, making problem resolution much faster with fewer fingers to point. And often your phone support vendor will be a single point of contact, making your life even easier.
- Lower Cost Of Ownership: The fact is that you and your team will always need business phones, right? So, when you’re weighing the cost of one system over another, you should be thinking long-term and look at the bigger picture. On-premise phones seem to cost more at the outset because you have to buy the phones and the main system. However, once you’ve made that investment, you’re only paying for the system support and phone services each month which is typically a fraction of the cost of hosted services. You can also consider leasing or renting the system over a few years to spread out the up-front cost, which often still results in a lower monthly payment. Compare this to the monthly per-seat rate for hosted phones which will go up over time as your business grows. Over the course of 3-5 years, the on-premise solution will likely be the more cost-effective choice. This is especially true once the system is paid for, as most modern on-premise phone systems last for 6-10 years without only minor maintenance costs.
Disadvantages Of On-Premise Phone Systems
- Up-Front Costs: The primary barrier for most organizations considering an on-premise solution is the cost. You have to buy all the equipment and phones, then also pay for installation and programming up-front. Buying or leasing the equipment becomes a capital expense, which may be either an advantage or disadvantage to your business depending on your tax situation.
- IT Network Upgrades: Because your phone system is located at your office, you may need to improve your IT environment to ensure that your phone system stays on-line. This often includes adding a UPS for battery backup and potentially upgrading your primary connection or adding a second connection.
- System Maintenance & Support: When you own the system you also own the responsibility to keep the system up to date and handle any maintenance costs. This normally means you’ll need to find a phone system vendor that will do this for you for an additional fee. So selecting the right phone vendor who can be proactive and responsive is critical.
Should You Choose An On-Premise Or Hosted Phone System?
Unfortunately, we can’t answer this question for your specific business, but we hope this information helps you in your evaluation.
One thing to keep in mind: because both options leverage VoIP technology, they are both able to provide many of the same features for your business. Common features of both hosted and on-premise VoIP systems include:
- Support for Remote Workers: This includes work at home users and those that frequently travel, with support for remote phones, softphones and mobile device apps. Your calls follow you and your employees where you need to work, not just your desk.
- Flexible Call Routing: Because phone numbers are no longer tied to analog lines, calls can easily be routed to different phones and groups of users, then quickly changed when needed. For example, you can change calls to your service or sales team based on daily schedules, weather disruptions, and other dynamic events.
- Integration with Business Applications: Most systems will support integrations with key applications like Zendesk, Salesforce and other key business apps. These integrations improve your workflows and make your staff more efficient, improving the service you provide to your clients.
- New Features & Improvements: Today’s modern VoIP systems are constantly being upgraded with new features through software updates. These upgrades help extend the useful life of the system and provide further cost justification.
The bottom line is that if you are still using an older phone system, either hosted or on-premise solutions are likely to improve your business communications and often reduce your monthly phone bills.
If you’re still undecided or would like help in your evaluation, please feel free to reach out. At Core Vision we help our clients evaluate their options and determine which solution best meets their needs. We have found that many of our clients have a better return on investment and a better experience using our on-premise solution from Allworx, but we support most hosted options that clients chose as well. The choice is yours!
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