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On-premises PBX vs hosted PBX. What’s the difference?


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Terms like on-premises private branch exchange (PBX) might be confusing, but implementing this technology promotes cost-savings and stronger internal and client communications.

A PBX phone system routes calls to the appropriate numbers so it can handle high volumes of calls efficiently, and callers will never receive a busy signal.


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For organizations with multiple offices or remote workforces, a PBX system can forward calls to any desk phone or mobile phone within the organization, meaning seamless client service and cross-location collaboration.

Understanding the differences between on-premises PBX and hosted PBX, as well as their costs and risks for your organization can help you make a more informed decision about which system to implement. 

What is on-premises?

When software is “on-premises,” it means that the servers are located on site. Organizations that host software on site have a room dedicated to data hardware, which is managed by employees. The opposite of on-premises software is hosted software, which means that the data is managed by the provider. 

While hosted systems are more suited to organizations that don’t have an IT infrastructure, on-premises software offers more flexibility and scalability for large and growing organizations.

What is private branch exchange (PBX)?

A private branch exchange (PBX) is a telephone system that switches calls between users on local lines while providing all users of the system with a certain number of external phone lines. This saves organizations money as opposed to having to purchase a separate external phone line for every user. 

What is on-premises PBX?

The “on-premises” tag before a PBX system refers to where the PBX is hosted. On-premises PBX uses IP routing technology for phone calls. It can incorporate voice over internet protocol (VoIP) software, which means that phone calls are transmitted over the internet as opposed to over a traditional phone line.

VoIP offers other features like voicemail to email, which sends a recording of a voicemail message to a user’s email address; simultaneous ring, which means phone calls are sent to a user’s desk phone and cell phone; and call logs, to give your organization a deeper look at call analytics. 

Organizations that manage VoIP software only pay for internet versus paying for internet and phone service separately. While the internet is hosted on site, so too are phone calls when organizations use VoIP and on-premises PBX, which gives organizations greater flexibility for calls and conferencing options.


What is hosted PBX?

Hosted PBX is where the provider is responsible for housing the PBX system at their location, as well as managing the technology required to maintain the phone system. The phone lines will plug into a router that sends the calls, signaling, and features to a provider to handle. 
With a hosted PBX system, the provider will charge a monthly cost, however, are also responsible for maintenance and feature updates, which takes the load off of organizations’ IT departments. 

What are the pros and cons of on-premises versus hosted PBX?

For larger organizations or those making a lot of phone calls, on-premises PBX offers more flexibility for users, and VoIP can save organizations of calling costs. However, organizations that cannot afford higher installation costs or do not have a dedicated IT professional on site might be better off using a hosted PBX system instead.

Purchasing and installing an on-premises PBX system involves buying hardware and software, as well as dedicating a space on site to setup a data hardware room. Organizations then have to train their IT departments on how to maintain the PBX system. On the other hand, hosted PBX systems take the pressure off of organizations to front these initial costs, but organizations have to pay a monthly fee to providers, which makes hosted systems more expensive in the long run.

Pros of on-premises PBX

  • Gives organizations the ability to control users
  • Can use current phone carrier
  • Integrates with VoIP to save on calling costs
  • Reduces expenses over time, after expenses are covered
  • Ability to SIP trunk to get lower-cost calls
  • On-premise IP-PBX provider will qualify network, install and program system, and train staff
  • Supports organizational scalability, as it’s easy to add and remove users with no additional cost

Cons of on-premises PBX

  • Higher initial set up and installation cost
  • Need dedicated and trained IT personnel to attend to technical issues
  • Organization is responsible for maintenance cost
  • Organization must maintain premise at which to host PBX system
  • PBX failure will stop business operations unless an organization has a SIP provider

Pros of hosted PBX

  • Lower initial cost and set-up cost, no on-premises hardware required
  • Providers are responsible for updating new feature sets 
  • Adding virtual numbers is easy
  • Moving the phone system is easy, because there’s no data hardware to manage
  • Loss of internet does not affect business operations, because provider can send calls to voicemail

Cons of hosted PBX

  • Call quality is directly related to strength of internet connection 
  • Network qualification is performed by the organization
  • Feature upgrades come at an additional cost
  • Limited flexibility hinders adding and deleting new users easily
  • Customization depends on provider
  • Recurring monthly payment in perpetuity 
  • Stability of provider is not guaranteed

Originally published Jul 06, 2020, updated Jun 18, 2024

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