IS it time to upgrade?

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

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.

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,

Factors to Consider When Purchasing a Business Phone System

Here are just a few of the many factors to consider when purchasing a business phone system and trying to decide between hosted and on-premises solutions.

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.

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 knowledgeable VoIP specialist who can help you weigh the unique aspects of your business to help you decide.

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.

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.


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.

Revertability (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.


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.


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.

Getting Help

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?

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.

Contact us if you would like more information. Regardless of your current telecom environment, we are here to help.

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