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On-Premise Phone System vs. Cloud Phone System

on-premise vs cloud phone system

Phone systems are imperative for any company’s business communications. The dilemma, then, is which phone system is the best to use? While there are several available options, we will be covering the on-premise phone system and cloud phone system.

There are advantages and disadvantages of running either of the two options. This is why it is not an easy decision for companies looking to upgrade their phone system. Opting for the best phone system for your business can make communication stress-free and reliable while being cost-effective.

This guide considers the pros and cons of both options. By the end, you will be confident of the phone system that fits your business operational model and best serves your customers.

What is an On-Premises Phone System?

An on-premise phone system is when your phone system is installed inside your physical workspace. An on-premise system is also referred to as a PBX. It is either owned or leased by the company and stored within its premises.

On-premise phone systems can incorporate VoIP services. With on-premise VoIP, you will have a dial tone from a traditional telecom or SIP trunk provider. This will come directly into your location and connect to the phone system.

Premise-based phone systems can be expensive to set up. You also incur additional costs on in-house IT professionals or a third-party service. This is for repair and maintenance processes.

What is a Cloud Phone System?

A cloud phone system delivers calls via an internet connection. Connections are faster as they are made through the internet using a Voice over Internet Protocol (VoIP). In contrast to on-premise phone systems, no hardware is installed in your physical workspace. The only hardware is the actual phones.

A cloud phone system is hosted by a service provider in a large data center off-site. They are responsible for all the setup, upgrades, and maintenance. This gives you a lot of flexibility and makes it a more cost-effective option. Cloud phone systems are also referred to as Hosted VoIP, Virtual VoIP, Cloud VoIP, Cloud PBX, and Hosted PBX.

On-Premise Phone System vs Cloud Phone System

Now that you have an understanding of both phone systems, let’s help you decide which is a better option for your business by examining these key areas:


For an on-premises phone system, you require a significant amount of capital upfront to secure the hardware. In addition, the installation costs and continual maintenance are your responsibility.  However, once you own it, there’s no risk of a fee increase.

A cloud-based system, on the other hand, is cheaper to set up. You do not need the initial heavy investments. Also, the responsibility of the setup and maintenance is taken off your shoulders. However, there’s a risk of a fee increase as your service provider could increase their fees at any time.


With cloud phone systems, your employees don’t have to work from the office. A cloud phone system is more flexible for remote teams. They can use their business phone number on their mobile device to make and receive work calls when working remotely. It will be the same experience for your customers.

With recent happenings in the world, remote working offers your team more flexibility which can make them more productive.


Hosted VoIP systems are generally more reliable than an on-premise phone system. They are responsible for the maintenance, and general upkeep of your phone system.


Scalability is necessary for any business that intends to meet its growing demands. An on-premise phone system truly gives you complete control but over time, you may need to expand. Manual upgrades can be time-consuming. Without a service provider to execute changes, this can result in downtime.

Cloud PBX, on the other hand, allows for the automatic installation of updates. They scale your service effectively. This ensures your phone system has the latest features – all done with zero downtime and no effort from your end.

How to Choose Between On-Premise and Cloud Phone System for Your Business

Now we have seen the intricacies of the two phone system. An on-premise phone system is on the high side regarding the cost but offers more control. A Cloud phone system is not as expensive upfront and offers more flexibility and scalability.

So, which of these best serves your business needs? Let’s further consider these four things:

1. Budget

How much can you afford to spend? Cost is an important consideration in any business. Both phone systems have upfront and monthly service costs. However, the setup cost for a cloud phone system is cheaper. You can even use a VoIP device you’ve already got.

Besides, you don’t need IT professionals as that is handled by the service provider and the cost is also not as high. A Cloud phone system is generally much cheaper than an on-premise system.

2. Setup – are the employees remote or in the office?

 For on-premise phone systems, call connections are made physically inside the office’s data center to employee phones. This does not work for the remote working option. Hosted VoIP system works best for a remote team.

Employees can make and receive business calls anywhere in the world using Voice over IP. VoIP sends and converts audio signals into digital files using the internet. The call quality is also better as it has twice the bandwidth of a typical analog phone call. All they need is good internet access.

3. Control – which system gives you more control overall?

If you want complete control overall, an on-premise phone system is what your business needs. You have complete control over your network and have access to an in-house IT team.

However, if you’d rather have less control and focus on other essential parts of your business, a hosted phone system is the best for you. You do not need any on-site installations. Your service provider takes all the concerns of setup and upkeeps off you.

4. Growth – do you plan on expanding your team?

Expanding your team on a Cloud VoIP system is seamless and more scalable. A new team member’s account can be created within minutes. Instead of adding more physical wires to your on-premise data center, your hosted provider can add another line to your online dashboard.

So, if you plan on hiring new team members in the next few years, it is easier to manage with a hosted provider.


Have you decided which phone system works best for your business? Some will opt for Cloud VoIP while others might get more value from a PBX within their premises. Whatever phone system you choose, ensure it factors in your limitations and caters abundantly to your business needs.

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