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Business Challenge #1: Decreasing Costs



In order to increase profit margins, businesses usually debate whether they should increase revenue or decrease costs (or combination of both). However, it's impossible to determine whether lowering costs or increasing revenue is more important across the board for all companies. There are too many factors that can influence the answer for a given company, in each market or in each economy.


However, some decisions you make can increase revenue while decreasing costs. This blog will first compare the costs differences of what a business premise-based phone system versus the costs of moving to a Cloud Phone system. We will then show how a decision to move your business phone system to the cloud will deliver far more than just increase revenues and decrease costs.


Basically, the Costs for both are:


  • Hardware & Software costs

  • Network Costs (Local, Long Distance, Mobil Carrier, Internet)

  • Capacity Costs (for growth, change and adaptability for future capabilities)

  • Installation or Implementation Costs

  • Professional Services

  • Maintenance Costs

  • Integration for Business Application Costs

  • Increased Security and Reliability Costs


Hardware and Software Costs – Legacy Premise-Based System Option

The following diagram shows a typical premise-based phone system design.

This shows what your premise-based phone system looks like if it is seven or more years old. The cabinet is mounted on a wall near where your Telco (Local Telephone Company) network lines are terminated and are connected to the cabinet. This cabinet houses slots for separate station and telco cards that are inserted along with the programming control boards and power supply that powers the system. The cabinet has limited capacity to grow but some cabinets can be connected to other cabinets to allow expansion. This is very expensive compared to today’s Cloud phone system technology because the hardware costs to manufacture the station and telco cards are much more costly than the software costs of the Cloud phone architecture. The Cloud phone system software provides all the functions and controls the hardware does in the premise-based phone system. Dramatic costs savings are realized by eliminating much of the hardware in the legacy premise-based system. The architecture of a Cloud Phone System makes it easy and much less costly to grow, change and adapt to newer advancements. This allows businesses to respond more quickly to market changes as they emerge.


In addition, legacy premise-based systems are not capable of adding many important business applications that not only reduce costs, but also improve revenues, increase productivity and delivery superior customer satisfaction. Business applications like CRM (Customer Relationship Management), IVR (Integrated Voice Response), Mobile Phone Integration, Unified Communications, Contact Center, Call Recording, Workforce Management and other advanced capabilities. These are not easily installed, if at all, without very expensive customization and professional services costs.


Although premise-based systems are reliable, the architecture is not designed to provide Disaster Recovery, so downtime is vulnerable if fire, cable cuts, power loss or other disasters occur. Also, potential Security breaches are at risk that Cloud Phone architecture is built to avoid. Finally, a premise-based system is a capital purchase in which the hardware/software maintenance support must be contracted separately unlike a Cloud Phone system which is included in the monthly subscription expense.


More Advanced On-Premise Phone System Option


If your premise-based system is more modern, it is likely an IPPBX (Internet Protocol Private Branch Exchange) which the diagram on the left shows. This means your network voice and data has been integrated into a single IP or Internet network, rather than two separate networks to transmit voice and data separately (at a separate cost). The diagram shows how it connects phones, computers, printers, and other digital devices into this IP premise-based system. One of the major advantages is how much it reduces the network costs over the previous cabinet design and how economical it is to add data and digital devices as needed. However, since this design is still a premise-based system, it is subject to some of the previous premise-based system short comings such as capacity limitations, on-site maintenance, automatic software updates and is subject to the disaster recovery and downtime concerns. Also, this is also a capital purchase rather than a monthly expense that includes on-going support, installation/implementation, upgrades and the optional business application integrations which are not included in the purchase price of the premise-based hardware and software.


Cloud Phone System Option


A Cloud Phone System is today’s most modern way to harness your Phone/Voice and Data functions. Everything is hosted and managed by a Cloud Service Provider. This includes all hardware, software and business applications. All costs to support, install/implement, maintenance upgrades, fail-over and security are included for one monthly expense. It is quick and easy to grow and change, make additions and integrate new applications as well as move or add new locations. Adapting to market changes allows your business to be nimbler and greatly reduces the labor and real estate costs necessary to house and maintain the hardware and software on your business premise – this means less, or no IT staff required. With the rapid advances in technology, it becomes very expensive, time consuming and capital investment heavy to stay competitive and to meet customers’ demands.


SD-WAN Advantage – Reduces Costs


Ensuring your communications and data are continually available is critical. It is essential that your business experiences little or no downtime. A recent study conducted by Cisco & AppDynamics determined the high cost of what one hour of downtime is to an SMB business. That cost averages $8,580 per hour! The uptime of a premise-based phone system is 99% which sounds excellent but per this study that 1% downtime results in the $8,580 loss of business. A Cloud Phone System provides 99.999% uptime and that results in only an $8 per hour loss. Thus, by including an SD-WAN, your business will be protected against major downtime and the consequences that disasters such as fire, flood, power loss, network outages, etc. These disasters have put some businesses out of business altogether. Here is an example of how SD-WAN works:



As the diagram shows, on the right is your business Cloud phone system that is connected to your Internet. The internet is connected to two separate service providers – in this example a Cable/DSL Provider and Wireless Mobile Carrier. Those Internet Service Providers are also connected to your business Cloud Provider Network that has multiple data centers connected to insure the 99.999% uptime is delivered and an SLA (Service Level Agreement) is agreed to for this level of uptime.


In Summary

A Cloud Phone system is more reliable, simpler and reduces your operating costs dramatically. Many studies have found Cloud Phone Systems increases revenues and employee productivity. It is far more adaptable to meet competitive changes and best meets the customer’s requirements and preferences to engage with your business. It provides your business continuity especially when teamed with an SD-WAN. Knowing your business is supported by a Cloud Computing Platform allows you to free up cash flow for investment in important strategic business initiatives.


Request a quote or give us call at 713.910.1401 to speak with a Technology Advisor to explore available solutions and begin leveraging new technologies today that will improve your team communications and decrease your communication costs.