Low Total Cost of Ownership (TCO) Makes Hosted PBX a No Brainer for Small Business

by Jennifer Cuellar

Business Grade Voice System Features Are Necessary but Costly

Every business, large or small, should have a business-grade PBX capability because it projects a more professional image to your customers and prospects. Features like automated attendants, Find Me – Follow Me and Unified Communications can make a real difference in how your business is perceived by callers.

But owning and operating your own fully installed PBX can be prohibitively expensive for a small or mid-sized business. Costs for a fully deployed PBX system can vary widely but on average initial deployment cost can be as high as $1,000 per user. This doesn’t include the expenses associated with incoming phone lines, maintenance of the system, additional phone lines or in-house staff to manage the system.

Hosted PBX Advantages Are Too Compelling to Ignore

Hosted PBX has emerged over the last few years as a viable alternative to a fully installed, on-premise PBX system for many businesses.

Quite simply, Hosted PBX is your phone system in the cloud. And it has many advantages:

  • Low Upfront Costs – No need to buy any PBX server or expensive installation.
  • No CAPEX Requirements: You turn a capital expenditure into a operational expense because you pay by the month.
  •  Extremely Scalable: Just add another IP phone to the network and program a new phone number and you’re done.
  • Predictable Billing: Flat rate calling and low international rates.
  • No Additional Staff: No need for extra staff to manage internal voice communications
  • Disaster Proof: Since your phone system is managed in your provider’s offsite data center, phone traffic is just routed to voice mail or cell phones in the event of a floor or fire in your office
  • Virtual Office Capability: Plug your IP phone into any internet connection, anywhere in the world and you have access to your company directory, extension dialing, voice mail etc.
  • Regular New Features: You get new features as your hosting provider rolls them out.
Hosted PBX Total Cost of Ownership (TCO) Business Case

With so many advantages, the only real issue for small businesses is cost. More specifically, does Hosted PBX offer a lower total cost of ownership (TCO) compared to an on-premise system?

Let’s use a typical example of a small 40 person company and the relative costs of an on-premise PBX vs. a Hosted PBX situation over a 3 year period.

  • On-Premise PBX Solution
    • With an on-premise PBX, we will use the $1,000 per seat metric that we referenced earlier
    • We will make the reasonable assumption that annual maintenance of the on-premise PBX is $9,000
    • An average of one hour of employee staff time will be required to manage the system
  • Hosted PBX Solution
    • $29.99 per user per month (typical fees for full range of features and support)
    • 3 year contract


Year 1

Year 2

Year 3


On-Premise PBX Solution

Buy/Install PBX Server





Annual maintenance





In-house IT staff (growing at






Total Cost of On-Premise PBX





Hosted PBX Solution

Yearly Fees (50 phones)





Cost Difference





Source: Slideshare

From this example, the conclusions are clear:

  • On Premise PBX requires a significant up-front capital expenditure.
  • Yearly maintenance and licensing costs are not trivial for on-premise PBX – especially for smaller businesses.
  • Hosted PBX yearly fees are predictable; makes for easy budget planning
  • Over a three year period, a business can save around $20,000 with the Hosted PBX solution

Guest article by Randy Kremlacek. Randy is the owner of Teledynamic Communications and is an authority on IP business communications. Follow Teledynamic on Google+.

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