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How Much Does a Business Phone System Cost, Revised 2017

Posted by Gregg Haughton on Jun 2, 2017 3:42:50 PM

Of all my blog posts, the one that has been viewed and shared the most is my September 2011 post titled "How Much Does a Business Phone System Cost". To date, the post has been viewed over 22,000 times. 

In that 2011 blog, I broke down the components of a new system into the following categories: Wiring, Network Services, Telephone Stations, Control Unit or PBX Server, and Installation and Training. If you'd like to read the post, here is the link: Blog, how much does a business phone system cost

Well, apparently six years is a long time in telecom, because a lot has changed. Notably absent in my post is any discussion of cloud or hosted phone systems. In 2011, there were several companies selling hosted systems, but they were rare. Could services were just beginning to gain traction. 

The Forrester Research forecast below shows the explosive adoption of cloud services from 2011 to 2020. 

Why is this trend accelerating?

There are several factors in play. One, internet speeds are faster. According to a recent report by the FCC, internet speeds have tripled over the last three years. This has been driven by high bandwidth applications like video. While internet speeds had raced ahead, the costs have dropped. Two, the quality and reliability of internet service is improving because businesses depend on the internet for vital business systems. If your customer records are safely stored in the cloud, but you can't get to them; that's a problem. Three, businesses don't want the expense and headache of running complex hardware systems (like a business PBX system).

So, How much does a cloud phone system cost?

For a cloud system, you will still have costs associated with wiring, network services, switching, telephones and installation and training. So let's break that down:

1) Wiring - Cloud phone systems use IP phones that run over your local area network. You can either share one network connection with your desktop computer, or have the IP phone on it's own network connection. The cost to run a data cable is $190 in a typical office environment. If you are cabling an entire office, the per cable cost will be less. For the most part, the cost of cabling for a cloud system is comparable to the cost for an installed system.

2) Network Services - For an installed phone system you need phone lines in your office. For a cloud phone system, you only need internet. This is one place where cloud can save money. For a small business, you can get internet for about $100 per month. Larger firms may want to invest in fiber internet, and these costs start at $500 per month and grow with speed. Phone lines can cost $50 per line for analog lines and $500 plus for higher capacity digital services. 

3) Switching - That box in the computer closet that all your computers connect to is a data switch. A cloud phone system IP phone needs to connect to a switch as well. IP Phones also require power to operate, so most companies deploy power over Ethernet (PoE) switches for IP phones. PoE switches come in many sizes (number of ports). A basic 24 port PoE switch is $400 and could support 20 phones. However, your IT folks may turn their collective noses up at a $400 switch. Since your IT folks are going to have to support the data switch you use, it's a good idea to get their buy-in. 

4) Telephones - Cloud systems use industry standard IP phones that can be used across many platforms. This is another area where cloud phone systems can save money. There is no need to buy proprietary hardware that only works on a specific system. Phones for cloud services start at $75 for a basic six line display speakerphone and can go as high as $300 for a color touch screen large display phone.

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5) Cloud Phone Services - Unlike the capital outlay of an installed PBX, you pay for access to the cloud system on a monthly subscription basis. Typically, there is a charge per user. Frequently, there are several options for user profiles depending on what capabilities a specific users demands. User Charges start at $10 per seat and can go up from there. A full blown user with Unified Communications, Call Recording and Call Distribution capability may be $75 per month. There are also charges for phone numbers, e911 location services as well as usage and regulatory fees. Unlike traditional phone services, there are no "local calls" with a Cloud Phone System. Most providers either bundle minutes with each user, or sell "blocks of time" separately. Expect to pay somewhere around 3 cents per minute for outbound calling.

So, How Much Does a Complete Cloud Phone System Cost?

I recently prepared a proposal for a Real Estate Management Company with 30 telephones spread over 7 locations. The firm made 7500 minutes of outbound calls each month. The monthly recurring charges (exclusive of taxes) was $590 and the one time costs were $5000. One time costs included buying 30 fairly high end IP phones as well as installation and training. As a comparison, an installed PBX of the same size would be around $25K. The phone line costs for the installed PBX would be approx $350 per month, so the break even point is at almost 7 years. This ignores the maintenance costs associated with an installed PBX which is not a factor with a cloud phone system.  

So, which do I choose? 

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 The answer depends on your application, budget, goals, world view, IT team, and a hundred other factors. My advice is to speak with a good telecom sales person and design the system which best suits your companies needs. Or, you can flip a coin. 

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 Gregg Haughton is a Partner at Granite Communicaitons Inc. and has been working with customers in Southern New England to improve their communications systems since 1986. 

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Topics: Business Phone System

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