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Hosted PBX vs Standard PBX

Specific differences between a hosted PBX service, like VirtualPBX, and a hardware or software PBX depend on the particular PBX equipment being compared. VirtualPBX offers a full-featured system with features and capabilities very similar to the most expensive hardware systems. There are some key differences, however, that arise from the basic way the systems work.
Premise-based equipment is usually employed inside an office or building. It is usually a single piece of hardware that has multiple incoming phone lines shared across a higher number of extensions. Calls are answered by the PBX equipment, and then routed to a specific phone through hardwired lines inside the office. Sending a call outside the office to someone telecommuting or working elsewhere is often impossible, and always results in additional costs. Maintaining PBX equipment requires knowledge of PBX and phone technology and someone to do the work.
A hosted PBX service has a different set of advantages. A hosted system is maintained by the service provider, so there is no hardware or software for the client to pay for or support. Calls are routed from the hosted PBX to extension owners through the public telephone network. Each person that wants to receive calls has to have a working phone, so there is no sharing of phone lines between extensions. Calls can easily be routed to anyone, at any phone, in any location. Administration of the system is done simply, through a web-based interface, with little need for extra time or knowledge.
The following table summarizes some of the main differences between VirtualPBX’s hosted PBX service and a typical premise-based system. VirtualPBX has the premier hosted PBX service available today, so not all things true of this service will be true for other hosted systems, but there are some clear differences:

Virtual PBX Standard PBX
Up-Front Costs Very Low Very High
Support Costs Low Moderate
Costs Per Minute on Incoming Calls Moderate Low to Very Low
Share incoming phone lines No Yes
Route calls to any phone Yes No
Supports distributed employees Yes No
Scalability Very High Limited
Call capacity Very High Limited
Full feature set Included Expensive
Fault tolerant Yes No or Expensive
ACD queuing Included Expensive
Distributed administration Yes No
A hosted PBX, like the VirtualPBX service, is clearly the better choice for companies with distributed employees and those that want to limit initial capital outlay. A hardware PBX makes more sense financially when employees are all in one location and the cost of incoming calls must be kept extremely low.
Knowing what a PBX system will cost requires understanding how the system works and what associated costs will be incurred. It is true, however, that most companies will save money by using a hosted PBX service. The savings come mainly from the purchase price and maintenance costs of PBX hardware. Offsetting this saving is a modest cost per minute for hosted PBX services. However, this additional cost is not enough for most companies to make a hardware PBX cheaper, it’s just that many people don’t look at the cost of the hardware or maintenance, while a per-minute fee for service is very visible.
Based on the detail covered in the sections on Standard PBX Costs and Hosted PBX costs, it is possible to look at the relative expense for each type of system. The savings for a Hosted PBX service is larger for companies using toll-free service for incoming business traffic, since this is an “additional” cost for hardware PBX-based companies but it is included in most hosted PBX solutions. For these companies, the comparison looks like this:
pbx cost comparison with toll-free service

5 User System 40 User System
Monthly Costs Per Month Per Year Per Month Per Year
Premise-based PBX $ 225 $ 2,695 $ 1,467 $ 17,600
Hosted PBX $ 120 $ 1,440 $ 695 $ 8,340
Hosted Savings $ 105 $ 1,255 $ 772 $ 9,260
Hosted Savings % 47% 53%
These costs include all of the costs associated with each system. For example, a hosted system will need to pay for an incoming phone line for every employee, while a hardware PBX will have higher support and equipment costs. For either size company, the savings for hosted PBX service is over 50%!
If a business wants instead to use local numbers for incoming calls, the savings are a little less because most phone companies don’t charge any per-minute fee for local calls (it’s built into the cost of the phone line), but a hosted PBX will still have a “per-minute” fee. Often, however, hosted PBX companies offer a limited number of “free” minutes as part of the service package. Here is a cost comparison for businesses with local numbers:
pbx cost comparison with local number service

5 User System 40 User System
Monthly Costs Per Month Per Year Per Month Per Year
Premise-based PBX $ 145 $ 1,735 $ 1,067 $ 12,800
Hosted PBX $ 120 $ 1,440 $ 695 $ 8,340
Hosted Savings $ 25 $ 295 $ 372 $ 4,460
Hosted Savings % 17% 35%
As can be seen, any company, whether using local or toll free service, can save money with a hosted PBX. This is the main reason this type of service has become so popular, although added features and services also play a part in the decision.
It is also possible to compare the cost of hardware PBX systems vs. hosted PBX service in a “virtual office”. This allows companies to eliminate the cost of phone lines by using existing home or cellular phones, whose costs are already covered by the business or employee. The savings are enormous, as can be seen in the following tables:
virtual office comparison with toll-free service

5 User System 40 User System
Per Month Per Year Per Month Per Year
Total premise-based hardware PBX costs $ 225 $ 2,695 $ 1,467 $ 17,600
Total virtual-office hosted PBX costs $ 45 $ 540 $ 95 $ 1,140
Hosted Savings $ 180 $ 2,155 $ 1,372 $ 16,460
Hosted Savings % 80% 94%
virtual office comparison with local number service

5 User System 40 User System
Per Month Per Year Per Month Per Year
Total premise-based hardware PBX costs $ 145 $ 1,735 $ 1,067 $ 12,800
Total virtual-office hosted PBX costs $ 45 $ 540 $ 95 $ 1,140
Hosted Savings $ 100 $ 1,195 $ 972 $ 11,600
Hosted Savings % 69%strong> 91%
Not every company, of course, can go to a virtual office, but doing so can save a lot of money. Add savings for rent and utilities, and it is easy to see why so many companies are looking at the virtual office idea.
Numbers will vary from company to company, and with different hardware or service providers, but the message is clear. Hosted PBX service is a way for every company to save money, which is always a great thing, but even more important in today’s tough economy. For more detail on these calculations, see:

PBX System : What to Choose
The choice between a hosted PBX service and premise-based PBX system depends on the needs of the company. There are times when the choice is extremely easy. For example, it always makes sense for a company with employees that work outside the main office to choose a hosted service. But each type of PBX has its own advantages. What should you choose?
when a standard pbx system makes sense
  • All employees are physically located in the same office
  • High up-front costs are acceptable if the monthly cost is the lowest possible
  • The company wants the cheapest solution available regardless of capability
  • There is no need for toll-free service for callers
  • Larger companies
  • There is little likelihood of change in company size
when a hosted service like Virtual pbx® is the better choice
  • Some employees telecommute or work away from the main office
  • There is no main office – the company uses a “virtual” office
  • High up-front costs are not acceptable
  • The company wants to offer toll-free calls to its customers
  • Small companies
  • Companies that expect their needs to change
  • Incoming call capacity needs to be high
  • Fault tolerance and system reliability are important
  • There is no desire to dedicate employees or contract outside for PBX support
  • The PBX system needs to offer a complete set of features like true ACD queuing
Of course, not all hosted PBX services are created equal. These choices may be different for another service.