Cloud PBX vs. On-Premise PBX: Which Phone System is Better for Your Business?

Cloud VoIP

What Are Premise-Based and Cloud/Hosted PBX?

In order to answer the question of whether a hosted or on-premise phone system is better for businesses, we need to define what we mean by “on-premise” and “hosted/cloud” PBX.

What is a PBX? PBX stands for “private branch exchange.” Most PBXs have support for VoIP (Voice over Internet Protocol), which uses the internet to transmit the call.

What is On-Premise PBX? It’s a phone system where the hardware, including the private branch exchange (PBX) are on-site where the company is located.

What is Hosted/Cloud PBX? Hosted PBX (aka cloud PBX or cloud VoIP) is located off-site at the company providing the phone service.

The Downfall of On-Premise PBX

Your business may be perfectly happy with its current premise-based phone solution, and things may be running quite smoothly. But things can change quickly, especially when it comes to technology. For example, the pandemic of 2020 changed everything… absolutely everything. Just like that, the ability to work remotely, became a MUST have! Employees wanted (or needed) to work as if they were actually in the office at their desk. It’s difficult to do that with an on-premise phone system.

working from home office
Working from home isn’t easy when you have a premise-based PBX.

The premise-based PBX vendor you count on today to support your solutions might not be around tomorrow. Or as often happens these days, they could discontinue the product you own and force you to upgrade to a more expensive system to continue being supported.

Another frequent occurrence is, the internal IT/phone expert you rely on to make updates/fixes/changes to your phone system could leave the company.

In other words, a lot can quickly happen to undermine the happiness you currently have with your premise-based business phone system.

And if you have a multi-vendor system—i.e., multiple vendors providing the local and long-distance voice, PBX, IVR, audio conferencing, fax service, etc.—you can multiply the dangers of disruption many fold.

Small businesses that fail to update their communications capabilities could also risk falling way behind their competition without realizing it until it’s too late.

Communications systems have evolved considerably in recent years, driven in large part by a millennial workforce that has quite literally grown up with a mobile phone in its hands – all of the time! Millennials expect communication and collaboration to follow them seamlessly whether they’re at the office or working remotely, on their desk phone, laptop or smartphone—and they’ll naturally gravitate to companies that meet their expectations of mobility and flexibility.

That said, small businesses shouldn’t feel cornered into an all-or-nothing approach when it comes to cloud-based communications. As we’ll cover in the following sections, today’s hosted and premise-based phone systems both have much to offer in terms of cost, convenience, features, security and quality.

Hosted vs On-Premise Phone Systems: Which Costs More?

How much do on-premise and hosted PBX cost?

Costs of On-Premise PBX

Initial Costs

When you purchase a premise-based PBX or premise-based VoIP solution, there are significant upfront costs, including the PBX appliance(s) and associated license fees.

Maintenance/Upgrade Costs

In addition, you have the maintenance/upgrade fees for the PBX appliance, which tend to get higher as the PBX appliance gets older. You will also likely have a service contract with your vendor unless you have an in-house expert to maintain your system.

Local/Long-Distance Service & Per-Line Fees

Finally, there is a separate cost for the local and long-distance service as well as the per-line fees necessary for the business.

Advanced Features

Some high-end PBX appliances/services that delivers advanced features most subscribers may never use, but pay for anyway.

Cost of Hosted PBX

By contrast, a hosted (or more commonly called cloud-based) phone solution typically bundles and spreads out these costs evenly over time in the form of monthly fees. In order to recoup the costs of the equipment that they must maintain for the customer, a hosted phone provider will often sign customers to a minimum contract (e.g., two years) but some business VoIP providers like Intulse do not have long term contracts. Hosted customers do tend to have more flexibility in terms of what they actually pay for. Special features or usage plans can be tailored to the individual subscriber. Why pay for features you don’t need?

For example, here’s the pricing for Intulse hosted VoIP service.

The Verdict: Which is the Better Phone System for Businesses?

Ultimately, hosted vs. premise-based phone systems can come down to a personal preference for a capital expenditure or operations expenditure pricing model. In a nutshell…

On-Premise PBX

  1. Costs much more upfront
  2. Has full feature capability built in that isn’t optional
  3. Requires a service contract or in-house IT expert

Hosted PBX

  1. Little or no upfront hardware costs
  2. Advanced features can be added at any time and paid for only when needed
  3. Maintenance and support is provided by the host an included in the consistent system + service monthly bill

A Hosted VoIP solution like Intulse = 1 vendor, all bundled together, with one number to call for support.

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Stay tuned for the next segment where we will look at:

Hosted VoIP vs. Premise VoIP: Which Is More Convenient?