PBX Versus VoIP: A Cost-Benefit Analysis

Phone calls influence more than $1 trillion in US consumer spending. They are the most convenient means to persuade customers to take certain actions, according to a study made by Virginia-based management consulting firm BIA Advisory Services.

The report says phone calls convert up to 15 times more revenue than web leads and form completions. Many customers prefer to use the phone when they have decided to buy a product or service after doing their online research.

Choosing the right business phone system is vital for your business to thrive. But such a task can be challenging, owing to the fact that numerous companies offer a variety of phone products and services. Plus, the different phone systems available on the market can be quite complicated to understand on your own. 

There are two main types of business phone systems: PBX and VoIP. As a business owner or a manager, probably the first few factors that come to your mind before investing in a system are price, affordability, and suitability. 

If you have already started your research, you may have a general idea at this point that a VoIP-based phone system appears to be more cost-effective than a PBX system. 

Is VoIP truly cheaper than PBX? In this article, we will discuss the prices and costs of each system as well as their differences.

What are the differences between VoIP and PBX? 

In the previous blog “PBX vs VoIP: Which One Is Better“, we’ve talked about the difference between Voice over Internet Protocol (VoIP) and Private Branch Exchange (PBX) systems.

Mainly used by businesses that require a dedicated phone system, PBX networks have existed since the 1960s and originally consisted of bulky hardware to operate. VoIP has been around since the 1990s and relies on the internet to conduct calls. 

One of the primary differences between the two networks is the system connection protocols or the method by which they provide phone calls to users. A VoIP system needs only two things: a computer or an IP phone and an internet connection. A PBX network, however, is more complex to operate because it uses traditional hardwire telephone lines for making and receiving calls. You need a computer server, multiple lines, and a manual control board for your office to link to the public system. The multiple lines are connected to an internal switching system that directs calls to each phone line in your organization. 

Another difference is the potential equipment options or the phone devices used to make calls. VoIP platforms offer you a variety of equipment choices. If you are accustomed to using standard desk phones, then you can opt for an IP phone or a wireless phone to connect online. Another way is with a softphone client, an application that several VoIP service providers offer so you can make phone calls straight from a mobile device or computer.  Typical PBX systems still use analog phone equipment, corded phones, headsets, or cordless phones for hands-free access. 

Whether the system supports a user-friendly configuration is a criterion that distinguishes one system from the other. In terms of calling features, a PBX is limited and less flexible. When configurations are needed to route or forward calls, you have to rely on an experienced system administrator to do it. A VoIP system can be configured by individuals even if they only have basic-level knowledge of programming. For instance, the popular VoIP app Skype can be configured by employees using an easy online interface regardless of your business size. 

The last difference, according to the article, is the factors affecting performance. A PBX is a dedicated network meant for a single company or organization. External factors cannot affect its performance, which depends mostly on internal conditions, such as the number of lines and the number of users. 

By contrast, a VoIP system is exposed to outside factors that are beyond its control. Even though this technology uses the internet, its bandwidth depends on the amount your internet service provider gives to you. Moreover, multiple business users share the same connections, a setup that can hurt the quality of VoIP calls when a high volume of simultaneous connections takes place.  

Which is better? VoIP or PBX?

In terms of operating expenses, the cost of a traditional PBX system is considered high. Not only does your business need to buy the hardware, but the operating and maintenance cost per employee varies significantly, ranging from $100 to $1,000.  Small and medium-sized enterprises (SMEs) having less than 100 staff will incur lower costs than large organizations that adopt a traditional PBX system.

Conversely, the running costs of VoIP for businesses range from $25 to $30 for every individual user with an unlimited calling feature. Similarly, the initial set-up cost is low because this network does not need dedicated desk phones or hardware.

The upfront cost of a PBX is regarded as high. On-premise PBX, for instance, requires the purchase of hardware and proprietary phones, both of which need an experienced technical team for the installation and maintenance of the system. 

In terms of security, a PBX system is described as solidly safe. Similar to landlines, standard PBXs mainly rely on analog technology to transmit voice data via the copper lines of the Public Switched Telephone Network (PSTN), a telecommunications infrastructure that cannot be hacked. A PBX can also have a Session Border Controller (SBC), a device that protects IP communications flows, to further improve its security.  

On the other hand, a VoIP platform is dependent on both the security practices of the phone service provider and your business. Encryption and firewalls are required to enhance your system’s security. 

In terms of reliability, a traditional PBX solution scores high because it uses the tried-and-tested PSTN for connections. An issue about stability is the lack of redundancy in its setup. Since the hardware is placed in a single location and has no backup, the PBX network is expensive and it can be hard to restore service should a problem arise. 

A VoIP system’s reliability is high but variable. Technology has vastly improved in this area over the years. The advent of better internet services has allowed businesses to maximize VoIP usage with minimal disruptions.  

Due to its dependency on an internet connection, a VoIP solution that delivers a low-quality connection to users will experience poor call quality. This system is reliant on your phone service provider’s data center network, which is usually equipped with a redundancy of data sites to provide continued stability to your VoIP system. 

With regards to phone compatibility, a traditional PBX system is limited and usually needs proprietary phones that have a system or vendor lock, making them incompatible with other solutions.  

A VoIP system offers a wider range of options.  It does not often need dedicated desk phones and your employees can use the service on their mobile devices such as smartphones or a computer softphone. IP desk phones built for VoIP keep improving in features and better models are frequently introduced on the market. By simply using an adapter, these IP phones can be suited to the old landline phones. 

How much does a PBX cost?

Setting up an office phone system is a crucial decision you will need to make if you want to improve communications internally and externally. Installing a PBX will be a substantial investment. 

According to Asterisk PBX Systems, an online source for information on PBX systems, the ideal way for SMEs to estimate the cost of a new PBX phone system is by applying the “per-seat” number method. Per seat simply pertains to the number of phones, which can either refer to extensions or the number of employees. 

Using historical cost, the website places the price per seat ranges between $700 and $1,000, depending on the size of your business. If your organization is classified as large, then the cost per seat will be considerably lower than it is for smaller enterprises. 

These estimated price ranges are based on a full set-up and the linking of each phone extension to the PBX, installation of new phones, a UPS battery back-up, a PBX with an attendant, and all the voicemail features that are part of the system, connection of the outside lines to the system, and lightning protection.

If your business has 20 employees, then you will need 20 seats that are most likely priced at the high-end range, say $900-$1,000 per seat. So you should allot a budget of $18,000-$20,000 to set up a new IP-PBX phone system.  This type of PBX system uses the internet to manage and deliver voice communication services within the company. 

Desk phones or handsets account for the main cost of a PBX system.  They can run from as low as $125 to as high as $350. Depending on the brand and the model, IP phones fetch a price of between $75 and $400. 

Hosted and on-premise PBX

An article on the Startups.co.uk website, an online small business advice platform, explains there are two kinds of PBX systems, each having different costs: hosted and on-premise PBX. 

A hosted PBX is where a provider hosts the PBX at their location, providing you access through the cloud. It is a cloud-based system and typically has no setup or installation costs

An on-premise PBX is hosted at your site and involves initial high installation and equipment costs, but could be more affordable to maintain over the long term. This system also gives you higher control than a hosted PBX and is suitable with analog phone lines. 

The article points out that the cost of hosted or cloud PBX is generally computed based on a monthly fee, a number of users and features, and usage-based extra (if you go over your allocated minutes). This setup has no installation, maintenance, or on-site equipment costs. 

The more users you have, the lower the cost will be, but the minutes and features remain the same. You may prefer to pay monthly or annually. Some service providers offer discounts to users who pay annually.  

The costs of installing an on-site PBX network depend on the number of sites that need connection, the number of users, the main system’s location and its interconnection to other systems, the network traffic, and the current or expected usage. 

It also depends on the cost of leasing, renting, or buying the system as well as the price of hardware, installation, and maintenance. 

An on-site PBX requires hardware, such as phones (between $125 and $350) switchboard or servers (about $70), gateways (around $275 depending on the business size), ethernet switch ($17 per unit), and an internet connection (not less than $25 per month plus other installation charges). Installation alone for a normal small business is priced at least $5,000. 

On-premise PBX maintenance costs

An on-premise PBX system requires maintenance to keep your communication services running smoothly. If you use a hosted PBX system, then your service provider will deal with the maintenance cost. But the hardware and other related equipment at your location will be your financial and technical responsibilities. 

An article on HomeAdvisor, a digital marketplace for homeowners and service professionals, lists the three basic types of maintenance on a PBX system. These are lack of dial tone, busy signals, and choppy reception.

The common reason for a lack of dial tone is a faulty power supply, which costs about $20 on average to replace. Switching out the phone cable, which costs about $10 online or at a local electronic store, can also be done as a cheaper alternative. Another cause of no dial tone is that the router could be faulty; replacing the device costs about $250. 

Busy signals result in clients or customers being unable to get through and can hurt your business if this issue persists. They are caused by defective internal wiring that needs to be replaced. Changing the wiring costs $100 per connection. If this fails to resolve the issue, then replacing the whole central unit, which can cost up to $500 on average, is an option.

The last maintenance type is choppy reception or static interference, which can be due to faulty wiring, lack of power supply, or other devices attached to the line. If the problem is the power supply, then a replacement is required and will cost you $20. 

Is it cheaper to use VoIP? 

More choices come with a VoIP network and a cloud-based business phone system.  

A typical VoIP service costs consist of basic plans and no setup fees. Plans are usually offered at a minimum of $15.99 every month per user. Price varies depending on the number of users and subscription time. Some service providers give preferred discounts to subscribers who pay on an annual basis. 

A hosted VoIP provider usually does not charge you for a setup fee since there is no physical hardware to install in the office. Your business can avail itself of the system as soon as the vendor produces the account information and phone numbers or port numbers. 

In general, phone service providers will diversify their products and services based on user count and feature limitations. With user count, providers will charge a fixed rate for a certain number of users. For instance, some vendors charge a group of up to five users $20 per month. Others charge per individual, such as $15 monthly per user. 

VoIP providers can offer more phone features for no extra cost. Their premium or high-tiered plans contain the most advanced features while the basic options have the more limited functional ability. Despite the service segmentation, the entry-level plan that they provide has much more to offer than the standard phone service established telecommunications companies give. 

KompareIt, an online resource for researched product and service comparisons, reveals that to set up a multi-line phone system for a small business of up 20 employees, the initial cost is around $4,500. The VoIP service provider will then charge you $700 monthly (or $8,400 annually) on average. Your total hardware and software costs for the first year are almost $13,000. 

The website adds that VoIP vendors generally advertise their prices as per line, per user, and per month subscription fees. A number of the most common VoIP plans cost between $15 and $60 per month per line. Service providers will offer big companies long-term contracts or discounts of up to $2 per line, per month. 

PBX phone systems, which are most suitable for large businesses, are the most complex of the expensive desk phones, with prices ranging from $200 to $1,000 per unit.

Other costs include headsets for desk phones ($15-$150) and routers for internet-based systems ($75-$400). Prices vary widely because of the different features they offer and their system compatibility.

If you need assistance from IT professionals or consultants to install the hardware of your two-line phone system or any other type of phone network, then a budget of around $500 as a fee for a five-hour installation work (between $50 and $150 per hour) should be set aside. 

CostHack, a market research site for cost guides, explains that the basic installation costs for a VoIP system range from $100 to $200 for each VoIP phone. Service providers typically charge an initial set-up or labor fee between $20 and $40 per phone. Some vendors will also offer to migrate your current numbers for a fee of $10 to $20. 

Furthermore, a VoIP system has a recurring monthly charge for each extension, which costs between $10 and $50 every month per line for cloud-based solutions.

Based on these estimates, an organization with a staff of 10 with each needing a phone will have to invest up to $2,000 to cover the hardware, labor, and migration expenses plus $100-$500 per month in recurring fees. 

The site also lists other costs related to setting up a VoIP phone system. These are adaptors ($60-$80 per phone), internet connection (for as low as $50 per month for high-speed broadband or fiber-optic connection), long-distance calls, extra features (such as conference calling or call forwarding for as little as $5 per month), ethernet ports ($150 installation cost per port), additional phone numbers (about $5 per listing), and softphones ($50 monthly per unit). 

According to CostHack’s statistical findings, adopting VoIP can lead to yearly productivity gains of $480 per user. Based on these cost savings, if your business has 50 users, you can save as much as $24,000 annually by implementing this cloud-hosted phone system. 

A cloud phone system has many pros and cons.  But an increasing number of companies have been using this virtual platform because of the expected higher return on investment (ROI) in the long run. 

Conclusion

Communication as a whole is an essential part of your business’ success. Before making that crucial decision on using a business phone system, it’s vital to learn what choices are available on the market, understand what each selection means for your business, and finally pick the best option.

Financially speaking, a PBX system is a more expensive investment and costs more to use than a VOIP system, mainly because of the high installation costs for landlines, hardware, and other related equipment. A VoIP network is more affordable, but a PBX system’s primary advantage is higher control for your organization since it’s not reliant on the internet, which can experience some technical and security issues from time to time.

But when deciding between the two, examine all the advantages or benefits and disadvantages or costs of both systems, which are dependent on your business situation and objective.

The process of acquiring the best phone system can be challenging and time-consuming. It will take some research on your part as neither a one-size-fits-all solution nor a single pricing structure exists or is available on the market to make your life easier. 

To help you choose the most serviceable system, it is recommended that you contact companies similar to yours that are using systems that interest you. Get their feedback and other relevant details. Ask as many questions as you can to get all the information you need. 

Another way is to request the service provider a demo or a trial period if that’s possible. This is a means to find out if the system is easy to use, compatible with your current platforms, rich in features, and to really examine how the system works. 

It’s also advisable to contact various dealers, vendors, or service providers and compare their prices and rates. You also have to look into each company’s reputation and customer service quality by interviewing each one of them, searching online for customer reviews or feedback, or asking people you know who have bought from them. 

To make the most of your budget, it is prudent that you purchase the system at the right time when companies offer discounts, promotions, or affordable deals. Keep track of the buying trends as well. Find out the best month or period to spend — it could be the end of the quarter or the year, or during holidays.