Hosted vs On-Premise Phone Systems: Which Is Right For You?

Organizations need phone service to connect employees, share information, and keep the business moving forward. There are so many options available to choose from, but the two most common options for phone service are on-premise and hosted voice. 

What’s the difference between hosted versus on-premise phone systems? Which is better for your organization? Let’s look at on-premise phone systems versus cloud options, weigh their pros and cons, and determine which option will work best for your organization.

What is hosted voice? 

Hosted voice is a type of phone system that’s built in the cloud. Instead of using phone lines to make calls, hosted voice systems use your internet connection and the cloud to make the magic happen.

Your employees won’t know any different, though: it works similarly to a traditional phone setup. The only hardware you need to supply with hosted voice is physical phones and a network switch. This minimalist setup saves money by eliminating hardware, removing the need to track minutes, and simplifying the billing process with a per-user model. 

With hosted voice, your hosting company manages just about everything for you. It does require a monthly payment because it’s a subscription service. However, its low upfront cost and scalability make hosted voice a trusted option for thousands of organizations across the world.

Pros 

• Lower costs: Hosted voice solutions don’t require as much hardware, which significantly decreases your upfront costs. 
• Quick setup: There’s no need to install cable with hosted voice. This is a plug-and-play solution that makes it a cinch to get up and running in just a few hours.
• Flat pricing: Hosted voice typically works on a user subscription model. Its predictable, flat-rate pricing makes it easier to predict monthly costs. Plus, if you need extra seats for a busy time of the year, like the holidays, hosted voice allows you to add and remove licenses as needed. You only pay for what you use.
• Add-on features: Hosted voice phone systems have tons of features available because they’re based on the internet. Many of these features are built-in, but you can also choose a custom setup, too.
• Multi-location: Are your employees working from home? Hosted voice makes it possible for employees to keep the same phone number regardless of their physical location.
• Simple maintenance: The hosting company does the maintenance for you. This does mean you give up a degree of control over maintenance and scheduled outages, but overall, hosted voice gives your team less to worry about.

Cons

• Call quality: Hosted voice requires a high-speed internet connection and plenty of bandwidth. If your internet connection is limited, you’ll experience dropped calls and poor audio quality. This is why it’s so important to upgrade your internet infrastructure before you switch to hosted voice.
• Add-on expenses: If you want extra features, you’ll often need to purchase those as an add-on to your hosted voice package. This isn’t always a bad thing, though; it means you have the ability to customize to your exact needs and only pay for features you’ll use.

What are on-premise phone systems?

On-premise phone systems are also known as a Private Branch Exchange, or PBX. This is a traditional phone system setup where you make calls over your own Local Area Network (LAN) instead of the internet. 

On-premise phone systems do require a significant upfront investment because they require wiring and hardware. You’ll also pay a monthly fee for your dial tone.

With on-premise phone systems, everything is housed, controlled, and maintained within the business itself. This gives you a greater degree of control, but it does mean you’re responsible for maintenance and upgrades since you own the equipment. 

Pros

• Add-ons included: Unlike hosted voice, add-ons are often automatically rolled into your on-premise phone system and pricing package.
• Control: Your organization owns the phone equipment in your building, which gives you more control over your phone system.
• Lower latency: Because everything is housed in your building and doesn’t need to travel long distances, you’ll experience less latency with on-premise phone systems. This is ideal for more complex phone setups, like call centers.

Cons

• Upfront capital: On-premise phone systems require a tremendous amount of capital. You have to pay for installation as well as hardware, so it can be tough for smaller organizations to foot the bill upfront. 
• In-house maintenance: Because your organization controls the equipment, internal maintenance is required to keep the system working. If you don’t have the resources to do maintenance, you’ll need to hire a third-party vendor for maintenance and repairs.
• Inflexibility: On-premise phone systems are a local, wired connection. They aren’t quite as future-proof as hosted voice for that reason. If you ever want to move locations or add/remove users, this system is not going to be able to accommodate as much. 

Capital Versus Operating Costs

To understand whether hosted voice or on-premise will work for your organization, it’s important to realize that they’re billed differently. 

On-premise phones are usually a capital investment. That means you pay a greater fee now with the hopes of reaping the benefits later. Since the upfront cost for on-premise can be $5,000 or more for up to 10 phone lines, it’s common for businesses to finance this capital expense. 

Hosted voice is billed as an operating expense because it’s a subscription service. With operating expenses, you pay on a regular monthly basis for the services that keep your business running. On average, you can expect to pay around $20/user per month, although pricing will differ by provider. 

Typically, operating expenses are easier for organizations to shoulder long term. The lower upfront cost makes it easier for small organizations to invest in better systems. Plus, operating expenses can be fully written off during the current tax year, while capital expenses can only be deducted on a partial basis with depreciation.

Cloud Vs On-Premise Phone Systems: Which Is Right for You?

If you’re trying to choose between hosted versus on-premise phone systems, it comes down to your organization’s needs: 

• Billing: Hosted is better for monthly fees with a low upfront payment, while on-premise has a big upfront setup fee and potentially lower monthly costs.
• Installation: Traditional on-premise phone systems require a wired installation while hosted voice is a simple plug-and-play.
• Management: Hosted voice is better if you want the hosting company to manage maintenance for you. On-premise is better if you prefer to do maintenance in-house. 
• Infrastructure: If you have good wifi connectivity, hosted voice is the better option. If your area doesn’t allow for a good internet connection, on-premise would be more effective. 

While there are pros and cons to on-premise phone systems versus cloud systems, hosted voice is a popular option for most organizations. Typically, you’re going to have lower costs, a better experience, and greater flexibility with this option.

Because of labor shortages, supply chain problems, and changing customer needs, it’s never been more important for businesses to stay flexible. If you spend more money on an inflexible solution like on-premise, you likely will need to switch to hosted voice in the future, anyway. If you want to future-proof from the start, hosted voice is a good option long-term. 

How Dice can help

However, you need a solid hosted voice provider to get the most value out of your hosted voice system. Since 2009, Dice Communications has helped organizations save time and money with smarter voice solutions thanks to our: 

• Must-have features like call forwarding to mobile devices
• Per-user pricing
• Customizable virtual numbers and voicemail
• 24/7 support

Is it time to revamp your phone system? Schedule a quick 30-minute consultation to answer all of your questions about hosted voice.