Cloud-Hosted vs On-Premise Phone Systems: Comparing Costs & Benefits

  • May 29, 2019
  • Author: Keith Young

There are pros and cons of both cloud-hosted and on-premise phone systems. Comparing the costs and benefits of these systems will help you determine the right solution for your business.

What is a Cloud-Hosted Phone System?

Cloud-hosted phone systems are also known as VoIP, hosted PBX, or cloud-based phone systems. It’s an internet-based system. This means that the service provider is responsible for managing all the necessary hardware and technology required for the service.

Service is subscription-based. Providers charge a monthly fee based on the amount of minutes and features required by the user.

Phones plug into a router. All calls, signaling and features are handled through the service provider’s server.

What is an On-Premise Phone System?

On-premise phone systems are also known as IP-PBX and resemble traditional private phone networks. This system resides at a location such as a phone closet or computer equipment room. Calls can go through a traditional phone company as well as voice-over-internet (VoIP).

Phones are connected to the on-premise server through a local area network (LAN). Gateway cards are used to connect the system to the traditional phone company provider. Additionally, internet service telephone providers (ISTP) can be used to configure the internet-based calling.

Comparing Costs

The costs involved in both phone systems include initial capital costs and recurring costs.

Capital Costs

Capital costs include all the hardware and software required to set up the system. Initial set-up and training costs must be taken into account, as well.

An advantage of a cloud-hosted phone system is its low upfront cost. The only hardware necessary is IP phones for each user. This makes it an ideal choice for small- to mid-sized businesses.

If initial costs (of either system) seem prohibitive, consider our leasing option.  

Recurring Costs

Depending on which system you choose, recurring costs could include:

  • maintenance,
  • software upgrades,
  • hardware servicing,
  • long distance charges, and
  • training and certification.

Electricity usage is an easily overlooked expense that does affect the cost of your phone system. Because an on-premise system requires more computing power and cooling on-site, electricity usage tends to be higher than with a cloud-hosted phone system.

The cloud-hosted phone system is at an advantage here again because maintenance, long-distance, and upgrades are all included in the subscription cost.

The on-premise system is not to be overlooked as it does end up with lower operational costs over time (after the initial expenses are covered).

This chart shows a general overview of the cost comparison.

See Comparing Costs of a Premises-Based Phone System vs A Cloud Phone Solution for a more in-depth look at the costs involved in these systems.

Comparing Benefits

Cost is important, but sometimes the benefits outweigh the costs. Knowing what features and benefits are important to you will help you determine which system you need.

3 Benefits of On-Premise Phone Systems

  1. Lower Costs Over Time: The initial cost is higher, but because the user owns the hardware, the overall cost is reduced over time.
  2. Reliability of Service: The ability to rely on the traditional phone lines to make calls minimizes service disruption in the event of lost internet connection.
  3. User Control: Phone lines, extensions, and operations are all under the management of the user. Integration with your current CRM software is easy because the system is designed to work with the tools you’re already using.   

A few of the disadvantages of an on-premise system are high set-up costs, limited flexibility, and difficulty expanding if needs exceed the physical limitations of the existing system. Also, upgrades may require a technician.

3 Benefits of Cloud-Hosted Phone Systems

  1. Simplicity & Ease of Use: The “plug-and-play” functionality makes it a cinch to set up or move your system. Upgrades and new feature installation are handled by the provider to avoid confusion and reduce the responsibility of the user – especially helpful for smaller companies without dedicated IT staff.
  2. Flexibility & Scalability: Moving the system, adding features and users, making changes to features or usage needs, and deleting features and users are all easy and can be done on an as-needed basis. Paying only for the services you actually use makes scaling seamless.  
  3. Remote Capability: Calls can be made from anywhere with an internet connection. Setting up the system to integrate with your mobile device allows users to work from home or on the go.

Reliability is also a benefit of the cloud-hosted system, however, complete reliance on the internet can be a disadvantage in case of lost internet connection. The strength of the connection can affect the quality of sound on all calls.

Dependence on the service provider can be another disadvantage IF the service provider fails to put excellent customer service at the top of their priority list.

At UnitedCloud, we’re committed to providing you with the best phone solution available. For more information about our phone solutions, contact us today.

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