Hosted vs On-Premise Phone Systems: What is the Difference? Which Should You Use?

Phone Systems Technology

Hosted vs. Non-Hosted Phone Systems: What is the Difference? Which Should You Use?

For a business to operate efficiently, seamless communication is a necessity. Therefore, having a grasp on the advantages and drawbacks of the different types of telecommunication systems is crucial.

Let’s explore the difference between a hosted and an on-premise system and which type of phone system will be most fitting for your office.

What is a Hosted Phone System?

A hosted phone system offers users all the popular features of an on-site phone system but is, as the name suggests, hosted at an off-site location by a professional telecommunications service provider.

Companies that wish to employ a hosted phone system will be charged an installation fee followed by subsequent monthly service charges.

Benefits of a Hosted Phone System

Hosted phone systems are often more beneficial to small to mid-sized companies because at on a smaller scale, they are an inexpensive alternative to an on-site system.

This is because hiring a hosted phone system eliminates some of the upfront expenses associated with installing a phone system and rarely require on-site service.  Hosted phone systems provide the companies who use them with remote system support should any issues arise.

Additionally, by paying fixed a service fee to a hosted phone system, companies can more accurately budget for telecommunication services each month.

Disadvantages of a Hosted Phone System

The most apparent problem of a hosted phone system is that you are reliant on an outside organization for your business’ telecommunications.  Any changes to numbers, adding users or unifying your communications will need to be handled by your provider.

Another potential drawback to a hosted phone system derives from its cost structure.  As it has a monthly recurring service charge, its total cost of ownership over the lifespan of the phone system is typically higher than if you had bought the system outright and hosted it on-premise.

What is an On-Premise Phone System?

An on-premise phone system is a more traditional telecommunications service which is hosted on-premise. Using an on-premise system eliminates the need for reliance on an external company to manage your telephone system because the user owns and maintains the system independently.

Common On-Premise Equipment

A PBX, or Private Branch Exchange, is a common type of on-premise phone system which provides digital calls on a larger grid than hosted telecommunication systems.

This type of system allows for a connection between internal devices through an extension number. Most on-premise office phone systems use a PBX system. 

Benefits of an On-Premise Phone System

Using on-premise phone systems allow companies to customize their system as they see fit, sometimes in ways that hosted phone system plans do not offer.

The ability to customize features within a phone system can have a dramatic impact on a company’s appearance to the outside world, as customers who encounter a company’s phone system often use the experience as a reflection of company’s accessibility, effectiveness, and professionality.

Additionally, on-premise phone systems are preferred as a means of protecting data security and ensuring that a company is safe from data exposure.

Typically, an on-premise phone system will have a lower total cost of ownership over the lifespan of the phone system to offset its larger upfront cost.

Disadvantages of an On-Premise System

Perhaps the most prominent downside of implementing an on-premise system is that it requires a significantly more expensive up-front cost than a hosted system.

This is due to costs associated with the hardware (the PBX) and installation of the system, as well as providing space to house the materials.  However, just as with other office equipment, leasing the phone system is a reliable way to reduce the front-loaded capital burden of purchasing an on-premise system.

Which Type of Phone System is Right for Your Office?

Understanding the critical differences between hosted and on-premise phone systems is the first step to deciding which option will best suit your company’s needs. Important areas to consider when choosing a phone system include:

  • Preference of upfront versus monthly recurring cost structure
  • The total cost of ownership versus initial capital outlay
  • Importance of housing data on-site
  • Requirements for customized features or settings

Phone calls are often the very first, and sometimes the only, line of direct communication between a company and a customer. Selecting a phone system which you can rely upon to consistently provide quality service is essential for any organization.

Cory Porteous
Director of Marketing & Inbound Business Development
Office Interiors  

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