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How Much Should You Spend on a Business Phone System?

Business Phone Systems Featured Article

How Much Should You Spend on a Business Phone System?




October 25, 2013


By Doug Barney, TMCnet Editor at Large

There are many reasons a company looks for a new business phone system. Sometimes it needs to expand and the cost of that expansion is too great. Other times it’s looking for new features. Most of the time it is looking for a better cost structure, and here it is most likely looking for a total or near total replacement of its existing phones.


Driving the actual decision makers are many criteria, and this is what the IT or telephony pros are thinking about. Unfortunately the executives and finance managers that manage the dollars are often just looking at cost.

Cost a Factor, Just Not THE Factor

Cost should absolutely be a factor when looking at a business phone system, but the initial one-time cost of an on-premises solution is just one part of the expense equation. Total cost of ownership is perhaps more critical than initial cost, and return on investment is far more important than the initial cost.

The way you pay is also critical. Most traditional phone systems are a capital expense. You must get approval for a large initial outlay and then pay for maintaining and managing that investment.

The cloud offers another option where the expenses are far more geared toward operating expenses. You do not have a large initial outlay and your ongoing costs, which are usually monthly costs, are very predictable and easier to absorb.

The other part is that these costs should be far lower. The cloud as a shared infrastructure distributes the costs across many customers. These volumes mean the prices are lower, and the basic economies of scale mean the cloud is often far less expensive than traditional on-premises infrastructure. The cloud off also offers the ability to easily scale, because the cloud is, by definition, elastic.

The cloud is not for everyone. For some shops, on-premises infrastructure still makes sense. For others a pure cloud approach is the cheapest and easiest to manage. Other shops that have demanding voice needs and the need to control may want a hybrid infrastructure that blends the best of on-premises infrastructure with the best that the cloud has to offer.

So cost is still very important, and there are various costs based upon your architecture, the level of technology, and the vendor whom you choose

Before we go deeper into the cost of a new business phone system, you should first examine the reason you are looking for a new phone system. If you are somehow unhappy with your current system and are looking for a greater value in a new system, part of the equation is figuring out what exactly is that greater value?

Are your costs of ownership and maintenance and IT manpower significant and you want to reduce them? Are you seeking productivity increases such that you can look at real boosts in revenue or decreases in the time needed to do productive tasks?

Another issue raised by new telephone technology is greater communication, not just amongst your employees, but with your partners and suppliers as well. While this may seem tough to measure, you can actually put a value on this increased productivity that comes from greater communication.

Picking Pricing

The cost calculations can be incredibly complicated or quite simple depending upon the architecture that you choose. If you are looking to upgrade your on-premises phone system, there are many pieces that have to be specified and ultimately acquired; there are the phones themselves, there is the installation and wiring, the cabinet that holds your telephony system, buying and setting up a new PBX (News - Alert) or other centralized infrastructure if that is the route you choose, and there may be programming and testing of the configurations.

These are just some of the costs of an on-premises telephone system upgrade.

A hybrid approach is likewise complicated as you need to specify and buy the on-premises gear as well as the cloud services that accompany. So again, there are many pieces that must be chosen, priced and ultimately acquired.

A pure cloud system is much simpler because the cloud provider has all of this gear or a good part of the gear in their cloud. You are not buying a PBX and other related hardware and software items, because these are all hosted in the cloud.

Despite the array of choices from vendors and levels of quality, there are some general pricing guidelines. If you are opting for a pure IP phone solution, which is now very appropriate for many as the quality hasn't proved greatly over the years, you may be looking at $300-$400 per phone for a device, but will get more features if you go up to $500-$600.

Of course you can spend far less and get fewer features and often lower quality, but keep mind that talking to customers on the telephone is a big part of how your company is perceived. Quality is everything.

If you add up all the costs of a pure IP telephony approach, the prices very but you may be looking at a total per user cost of between $400 and $1,000 depending upon the bells and whistles, and perhaps services that are provided by your vendor.

That may seem like a lot, but you also have to include the savings that come from an IP approach, not to mention the flexibility that IP telephony offers.

IP telephony can easily assume new functions because it is basically a computer and network.

In some cases, these new features can be activated free of charge. In other cases there is a fee, so you must look at the value of that feature versus the annual cost of activating the feature.

The more that comes standard the better. Some vendors offer solutions that include unified communications, softphones and desktop integration, so you don’t have to pay extra when you decide you need them.

And cloud and VoIP approaches can bypass many of the charges a traditional phone company might post.

The Aberdeen (News - Alert) Group is one research house that looks at telephony costs. Last year the company looked at the cost of legacy telephony versus an IP approach. One key point Aberdeen makes is to “think beyond equipment cost.” More important factors are TCO and downtime.

Aberdeen pegs average implementation costs at around $600-$700. Then you add additional items such as network upgrades and labor and implementation costs can rise to around $950 all the way up to some $1,500.

Afterward, there are recurring costs that run from around $100 per seat to a bit over $200.

VoIP and UC Markets Taking Off

The telephony market is changing and VoIP is taking hold amongst residential and business customers alike, according to Infonetics Research (News - Alert). “Residential VoIP services make up the majority of revenue, but growth is being fueled by business services as SIP trunking and cloud unified communications continue to expand and find broader adoption with enterprises of all sizes.”

For the first six months of this year, worldwide the residential and business VoIP services market hit $33 billion, and grew 3 percent. “Worldwide business VoIP service revenue is forecast by Infonetics to grow at a 7 percent CAGR from 2012 to 2017, compared to a 3 percent CAGR for residential/SOHO VoIP services,” the company said. “Hosted PBX/UC grew the most of any VoIP service in 1H13 as businesses, particularly larger enterprises, continue to turn to hosted services as a viable alternative to premises-based solutions”

There are more choices than ever when it comes to business phone systems. Not only are they more cost effective than ever, they also return greater value.




Edited by Rachel Ramsey
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