On-Premise vs. Hosted Phone Systems for Business: Which Is Better?

Submitted by Jim Williams on Tue, 02/ 18/ 20 - 12: 00 PM

On-Premise vs. Hosted Business Phones


Phone systems are a big investment that, when chosen correctly, can propel your business to new heights by streamlining operations and providing an optimal end user experience. When choosing between an on-premise and a hosted business phone system, you want to ensure that you're making the right decision for your business' needs. Read more to learn the differences between two main types of business phone systems as well as how to choose the right one for you.


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What's the Difference?

Which is Better?

Which One Should I Choose?

Questions to Ask Yourself When Buying Business Phones

What's the Difference?

An on-premise phone system, also known as a PBX, lets you own or lease the phone system yourself, as well as store all the required hardware such as the server onsite. The owner of an on-premise system is responsible for the upkeep and maintenance of any servers or data centers onsite.

A hosted phone system, also known as a virtual phone system, is cloud-based, which means that the only hardware onsite are the phones themselves and a network switch. All the data and servers are located offsite in a third party data center.

Additionally, hosted phone systems typically route calls over the Internet instead of through a traditional telephone line.

Which is Better?

On-Premise vs. Hosted Business Phone Systems



Better ROI

If you are a larger company, you might find a better ROI with an on-premise phone system. Though the up-front costs to purchase all the necessary hardware for your system can be substantial, it can last you a long time, which will make the investment worthwhile.

Suits Those Who Want a Hands-On Approach

On-premise systems are also beneficial to those who want a hands-on approach to managing their phone system's upgrades and maintenance. Companies who wish to keep their data physically close by may like the idea of keeping data in an onsite server.


Limited Extensions

Unlike cloud and hosted phone systems, on-premise systems have a finite number of available lines, which can hamper business operations if a company plans on expanding in the years to come.

Susceptible to Natural Disasters

Since your phone system's infrastructure is mainly housed physically in your office, this means that your phone service could be affected by natural disasters such as fires and floods.




Since the system infrastructure isn't completely housed in your office, the up-front investment required to set up a hosted phone system is minimal.


Since hosted phones are based on the Internet, the amount of lines you can add is virtually unlimited. This is great for companies who are remote or plan on experiencing rapid growth in the future. 

Suits Those Who Want a Hands-Off Approach

Hosted phone systems are typically managed off-site by another entity. This is great if you don't have an internal network administrator at your company and are overwhelmed at the thought of managing your phone system yourself.



Since your calls are ran through the Internet, if your Internet is down, so are your phone lines. However, the Auto Attendant, call handling, mobile applications, voicemail forwarding, and conferencing calling will all still work.

Call Quality

If your call volume is heavy and servers become overwhelmed, call quality can begin to drop.

RELATED: How Much Do Business Phone Systems Cost? [2019]

Which One Should I Choose?

Depending on your business' needs and budget, either of these types of phone systems could be a good fit for you.

Prioritize which aspects of a phone system your business values to figure out which one is a better fit. For instance, if you're not a start-up then you may not value scalability as a necessity in a phone system, but you may have a small budget to work with, which makes cost-effectiveness necessary.

No matter which phone system you choose, make sure you thoroughly conduct research to figure out which features are necessary for your business. The right business phone provider will work with you to streamline your business and propel you to greater heights. 

RELATED: Intermedia, Mitel, and RingCentral [2020 Comparison]

Questions to Ask Yourself When Buying  Business Phones 

How many phones do I need?

When buying a business phone system, a key point to figure out is how many phones your office needs. Consider if every employee needs a phone. While certain employees such as those in your sales department need a business phone to conduct business, other employees may not need one.

Consider the future of your business phone system as well. If your company plans on expanding or moving offices, your needs in a phone system may change as well. Ensure that your business phone provider can accommodate any such needs. 

What features do I need?

Business phone systems can offer such a wide array of features that businesses can become burdened with differentiating needs from wants. 

Determining which features are necessary and which ones aren't is a crucial step in deciding which phone offering is right for your business. Common phone features that companies typically desire include: 

  • Auto Attendant- An auto attendant ensures that your inbound calls are always responded to. It serves as a virtual receptionist and can come with a variety of customization tools, such as the ability to offer callers touch-tone options that route to specific people or extensions (through an automated directory).
  • Call Continuity- Call Continuity is a feature that minimizes downtime in the event of phone connectivity loss by automatically re-routing calls to specified backup numbers. Once your power or Internet is restored, normal call routing automatically resumes. 
  • Call Forwarding- Call forwarding enables inbound calls to be automatically forwarded to another phone such as a personal or home phone. This can be useful for re-directing calls when employees are out of the office.
  • Company Directory- This organizes employees and their extensions into a distinctive list. Certain extensions can be added to the automated attendant so that callers can listen for and dial into the right extension.
  • Conference Bridges- These are remote conference calls that allow for a virtually unlimited amount of attendees, which streamlines operations in the event of a remote meeting.
  • Hunt Groups- Hunt/ring groups direct calls to a designated group of employees. The phone system will search for the next available line within the group so that an incoming call does not go unanswered.
  • Unified Messaging/Twinning- This feature lets users link a cell phone number to their desk extension. Once the two devices are linked, calls to the user's desk will automatically ring on the other device as well, ensuring that the user never misses a call.

Which of my systems are these phones compatible with?

It can be expensive and time-consuming to upgrade all of your office's technology at one time, which is why it is quite rare for other systems to be upgraded at the same time as your business phones.

Devices and systems such as alarms, fax machines, and other shared resources may run on digital or POTS lines, which can present problems when your phone system is upgraded.

Check with your business phone provider to smooth out any wrinkles regarding the phone installation. For instance, some new phone systems may require additional network cabling.

How can my phone provider guarantee quality of service?

How can you measure the quality of your business phone provider's service? Since service can vary significantly from one provider to another, check with your provider to see if a Service Level Agreement (SLA) can be built to ensure that your provider delivers on their promises. 

For instance, you can set specific goals for factors such as jitter, latency, and response times in the event of outages. Your SLA should also set expectations for how you can get out of your contract if you are unsatisfied with your provider's service.

However, keep in mind that many providers will include contract stipulations that state that you must give them a specified period of time to remedy your complaints before you're allowed to break your contract.

RELATED: How to Buy a Business Phone System


We hope that this article helped put your business on the path towards choosing the right phone system! Investing in the perfect business phone solution for your organization can streamline operations and maximize productivity.

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Posted by Jim Williams


business phone systems