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 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.

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

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+.