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Part 4 of 5: Are the hidden costs of your phone system impacting your SMB's bottom line?



In this 5-part Blog post series, we'll cover how a cloud phone system can help your Small and Medium Business improve revenue, productivity, dramatically reduce costs and increase customer satisfaction by providing details about 5 major advantages of moving your phone system to the Cloud.


Dramatic Savings goes well beyond the cost of hardware, software, maintenance and installation. To experience Dramatic Savings you need to factor in how the technology impacts your business overall.Although several cost analysis’ have been done by industry experts, comparing premise-phone systems to Cloud Telephone Systems can vary greatly because they aren’t based upon the same apples-to-apples cost factors. Some comparisons are based just on the hardware, software, network, maintenance and installation costs. However, there are several other considerations that need to be factored beyond the obvious costs. Factors such as: system scalability, functionality, disaster recovery costs, flexibility, costs for additions, moves and changes should also be considered to deliver a true Total Cost of Ownership (TCO).


There is a basic business axiom that states, “you buy things that increase in value and rent things that decrease in value. Because a business system is considered an asset on the books, it must be depreciated over a period of time. You get immediate tax benefits each month on a cloud solution, the whole amount is an expense on the books.” You are paying for what a system does and how it impacts your organization. This is one of the reasons why a Cloud Telephone System makes so much financial sense.


Most people know and are familiar with “the obvious costs” associated with a telephone system. But many are unaware of the many hidden costs. We have broken them down for you for your benefit below.


“The Obvious Costs”

Typical Premised Based Telephone Systems can incur the following costs:


PBX Hardware – all the stuff hanging on the wall or on the floor including the main cabinet, power supplies, supplemental servers, printers, monitors, etc. There are also all the telephone instruments, conference units, and paging connections.


Licenses Fees – In today’s software-based world all telephone systems don’t just have hardware, they also have software licenses for a wide variety of capabilities and features that can dramatically raise the purchase price.


Standalone Communication Services – a good example is video conferencing/screen sharing services such as WebEx, Go To Meeting, etc. But it can also be for a fax server, for SMS or text services, and after hours call processing via an answering service.



“The Hidden Costs”

Premise systems also have hidden costs that must also be accounted for including:


Telcos (PRI’s, T-1s, SIP trunks, analog lines) – these are the circuits that actually provide your dial tone or telephone numbers to your office location that then is connected to the telephone system.


Long distance and 800 numbers – these are the circuits that actually provide your dial tone or telephone numbers to your office location that then is connected to the telephone system.


Multi-location (MPLS, PSTN) – These are the expense of the circuits to tie all your locations together, the cost to connect to your data center, mobile costs, and internet costs.


PBX Parts and Service

  • All of the equipment must be maintained. This can be achieved in one of two ways. A maintenance contract can be obtained from a local dealer. This will be comprised of the manufacturer’s maintenance (known as software assurance) and the cost of the local dealer for the labor to fix the system. Maintenance covers these costs. Without a maintenance contract you will be billed on a time and materials basis.

  • Hardware upgrades have to be manually upgraded when new releases are available.

  • Installation costs – the labor required to install the initial system, and to do any upgrades required through the system life.

  • Costs for moves, adds, and changes to the system require technical assistance, generally harged at an hourly rate. You also need to figure the capital costs to add additional equipment, i.e. servers, circuit boards, telephones, etc.

  • Servers costs – servers need to be replaced on an average of every three to four years.

  • Data center cost – this is the monthly recurring costs of storing your equipment in the data center, or of renting processing capability from the data center.

Outside Services

  • Professional services charges – traditional telephone systems often require substantial professional service charges for integrating applications and designing contact center functionality.

  • Contact center – the cost to acquire and maintain contact center servers, software, and professional services.


Growth & Change. All premise-phone systems have scalability limits. It can only have capacity for so many telephones and telephone network lines (PSTN). If you exceed that capacity you must purchase an expansion cabinet/hardware to provide that capacity and possibly require a completely new system. Cloud Telephone Systems have no scalability limitations, so that cost difference needs to be factored in the comparison – most of the cost analysis studies do not include these “hidden costs” or considerations. Flexibility is also an issue for premise-based systems. Many premise-base systems are not Voice over Internet Protocol (VoIP) compatible which is the current and preferred network today. IP phone systems allow a better, more cost-effective way to transmit voice and data – thus the network cost difference should be included.

  • Flexibility is also an issue for premise-based systems. Many premise-base systems are not Voice over Internet Protocol (VoIP) compatible which is the current and preferred network today. IP phone systems allow a better, more cost-effective way to transmit voice and data – thus the network cost difference should be included.

  • Major functions allowing text or SMS messaging is not available on most premise-base phone systems and this has become a very necessary and popular preference by customers to communicate with organizations. Nor are API integrations for applications like Customer Relationship Management (CRM), Billing/Accounting Software, etc. These are standard features included in a Cloud Telephone System.

  • It Takes up Less Space and Valuable Real Estate. Most Premise-Phone systems require additional square footage dedicated to the telephone equipment, additional energy costs to power and support air conditioning for the computer servers, along with the additional staff to perform IT functions and support. All these costs can begin to show up and increase as your business grows and changes and they usually aren’t anticipated, which puts your business at risk. The costs to expand and grow may force your business to move simply because your premise system needs more physical space to grow. With a Cloud Phone System, you don’t need to anticipate these changes because they are built for growth and changes and are constantly being updated with the latest technology available.

  • End of Life. Also, premise-based systems face “end of life” or “sunset” decisions. This means you will no longer receive support on the hardware or software once this is announced. Cloud Phone Systems will continue to receive support for as long as you continue your monthly service.

There are several other factors, like the above, that are not included in most cost analysis comparisons. So, the best way to make a cost comparative decision depends upon what your business goals are for growth, profitability along with your unique competitive advantages.


Savings Summary

In summary, Dramatic Savings are not realized by only the physical hardware & software costs, but by what the technology is doing to help your business: Increase Revenue and Profitability; Decrease Costs of Operations; Gain Market share or more customers; Increase employee Productivity; Improve Efficiency; Deliver Superior Customer Experience; Stay Nimble – by adjusting quickly to market changes and consumer behaviors that create unique competitive advantages. These are the characteristics that result in experiencing Dramatic Savings. Having a Cloud Telephone System allows your business the flexibility to quickly adjust to changes, at much less cost, with no or little disruption to your business.


Request a quote or give us call at 713.910.1401 to speak with a Technology Advisor to explore available Cloud Solutions that will improve your team communications and enhance the way your SMB communicates and manages your telecom expenses. For more information, click here to download our White Paper "Is a Cloud Phone System in your Future? A Guide for Small to Medium Businesses"