How Buyers Evaluate On-Premises vs. Hosted Phone Systems

Brian Ferguson

The debate focused around which phone system deployment method is preferred, a hosted PBX (also known as a cloud-based solution) or on-premises, has been building for years. With the rise of software-as-a-service (SaaS) options and more companies considering them, the argument of hosted versus on-premises has become more intense.

To help guide a decision, let’s take a look at an unbiased approach to determining which solution is a better fit for an organization. To get started, there are five questions you should ask  a company that requires them to analyze different aspects of their business to determine which the best fit is. Before we jump into the questions, let’s define the two deployment methods so businesses know the difference before they move forward.


On-premises phone systems (also referred to as on-prem or on-site) are physically deployed at an office(s) or data center(s). Typically, a company will buy and own all equipment including appliances, servers, interface cards and more, which will be installed at their physical locations. The IT staff will have complete control of the system as well as responsibility for all moves, adds, changes, on-going maintenance and updates. The company will also supply voice service to the system via analog, PRI/T1, SIP or another connection. On-prem has been the traditional option for phone systems for decades.


Hosted, or cloud-based phone systems, are deployed by a hosted provider in an off-site data center. The company will pay a monthly fee to use the system, which is connected to the office via a public or private internet connection. The only equipment they will typically have to purchase are desk phones. They will have some control over moves, adds and changes, and the hosted provider performs all updates and maintenance. They will not need to supply voice service as the provider delivers that as well.

Once a company knows the difference between the two phone system deployment options, below are the five simple questions you should ask businesses to help them decide which is best for them:

1. How Would You Prefer to Pay?

There is a distinct difference between the two options when it comes to payment preferences. On-prem systems are almost always fully paid for upfront, also known as a CapEx expense for a business. Money will need to be paid out and exchanged for full ownership of the equipment and licenses. This method is great for companies that have the budget and prefer to own the equipment they use. On-prem systems typically have a better Total Cost of Ownership (TCO) when looking purely at equipment costs.

Hosted systems allow companies to leverage OpEx, which turns a phone service into a monthly expense. OpEx is often the preferred method by today’s CFOs because it offers tax advantages and frees up cash for revenue-generating spending opportunities. Hosted customers pay a monthly fee that can be reduced with extended contract terms. Although on-prem systems typically have a lower TCO, hosted customers see equal financial benefits through tax savings and lower IT costs.

Bottom Line: A business should choose on-premises if they have the budget and cash upfront to buy the system outright in exchange for ownership and control. They should choose hosted to take advantage of the tax benefits of OpEx, and move their phone system purchase to a phone service expense.

2. What Is The State Of Your IT Group? What Are Their Priorities?

When a company talks about the state of its IT group, they’ll need to know how many people are available and if they have the time to manage a phone system. If they have a group that has the willingness and knowledge to support it, then on-prem gives them full control of the system. If not, hosted can take on the responsibility and free up the IT team to focus on other projects.

The priorities of the IT group are often a more important consideration when deciding which deployment method to go with. A company may have a group that is fully capable of managing a phone system but would rather do something else that actually helps generate revenue. Many large enterprises are justifying the higher TCO of hosted systems by using their IT resources in areas that directly generate revenue, such as system integration or customer experience projects.

Bottom Line: A company should choose on-prem if they have the resources and desire to maintain their own phone system in exchange for full control and better long-term system TCO. They should choose hosted if they want IT to focus on revenue-generating projects instead of maintaining a phone system.

3. Do You Need Full Control?

On-prem deployments deliver full control of the system, which includes moves, adds, changes, fine tuning network settings, advanced IVR creation, and more. Hosted providers open up enough of the system for a user to do what they want to do but handle everything else. Allowing a service provider to do the bulk of managing the phone system is also attractive to small businesses with limited or no in-house IT support.

Bottom Line: A business should choose on-prem if they need (or want) full control of their phone system. They should choose hosted if they could care less about full control and prefer the provider to handle the heavy lifting of phone system maintenance.

4. Do You Have Multiple Offices or Remote Users?

On-prem systems are certainly capable of handling remote users and multiple offices, but it’s more complex and more expensive. Oftentimes, additional equipment is required to connect the offices or users together that is not necessary in a hosted environment.

Bottom Line: If a business has remote workers and multiple offices, they should consider hosted to save money and avoid installation headaches.

5. Scalability: How Flexible Do You Need to Be?

Are the staff levels at the company fairly stable? Do they foresee any spikes or drops in the number of employees due to growth or contraction during the lifetime of the system? If they predict significant growth or contraction in their business during the time they use the system, hosted is the best choice. With hosted, they only pay for what they use. If they need to add or remove users, they either start or stop paying for them on a month-to-month basis. With on-prem, they pay upfront for the users they have, and if they have a contract, they’ve paid for an unnecessary user. Seasonal businesses should deploy a hosted solution since they only have a certain number of users for a portion of the year (such as a ski lodge or a CPA group).

Bottom Line: If a company foresees significant changes in staffing levels, both up or down, they should consider hosted. Changes to users can be made immediately, and they only pay for what they use.

As you can see, there are several factors a business needs to consider when deciding if their phone system should be on-prem or hosted. There’s not a one-size-fits-all answer, as both methods have advantages and considerations that need to be taken into account. Once you walk a company through the five questions above, they should have a better idea of which is best for them.


Brian Ferguson is the Product Marketing Manager for Switchvox, offered as an on-premises system or a cloud-based solution. Since becoming part of the Digium team in 2010, Brian has worked in multiple sales and marketing roles supporting Diguim’s reseller channel and helping SMB customers use Digium solutions to solve their business telephony challenges.