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What Is Interactive Voice Response (IVR)?

Jeff Hale
Jeff Hale
business.com Contributing Writer
Updated Jun 29, 2022

IVR systems can save your business time and money and boost customer satisfaction. Learn how IVR works.

Interactive voice response (IVR) is an automated type of business phone system technology that collects information via a prerecorded menu to direct a call to the appropriate department or individual. IVR systems are widely used; most people have come across an IVR menu that starts with an automated greeting and uses voice recognition or keypad input to help direct a call. 

IVR systems can save businesses money by reducing the time for agents to gather a caller’s information, determine the best person or department to help resolve their issue, and then route the call to the appropriate phone number or extension. 

When implemented properly, IVR systems can boost customer satisfaction by reducing hold times and quickly connecting customers to a live agent who’s ready and able to help resolve their issues. 

If you’re considering implementing an IVR system, you’ll find it as a basic or advanced feature through many of the best business phone systems. Here’s what you need to know.

Did you know?Did you know? IVR is also an essential feature of call center systems, along with call recording, live call coaching and speech analytics.

How does IVR work?

Interactive voice technology was developed in the early 1970s but didn’t gain widespread use until the ’90s, when computer hard drives that could read and write digitized voice data reached an affordable price point. These early on-premises IVR systems utilized simple dual-tone multi-frequency (DTMF) signals through a standard phone keypad to let callers navigate the IVR software’s menu options to reach the appropriate destination or hear a vital piece of information.

Today’s IVRs are offered as a primary or advanced feature for companies to consider when choosing a business phone system. Modern IVRs utilize the numbers and corresponding tones on your phone’s keypad as well as speech recognition and natural language processing to identify keywords and terms for navigating the available options in your call tree. 

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The ability to bypass the IVR menu to speak with a live agent is often available when a caller’s request is difficult to understand or uncommon. While standard call flow templates are available from many providers, most IVR menus and call flows are highly customized for each business. Their quality is determined mainly by the simplicity of their design.

Did you know?Did you know? A virtual answering service is another way to interact with callers. Virtual answering services often include IVR as a tool along with call forwarding, appointment scheduling and order management.

Who uses IVR?

IVRs are great at helping companies manage their inbound call flows without having employees pick up the phone, saving time and money in the process. While you may expect to come across an auto-attendant and IVR menu when contacting a multinational bank or internet service provider through a large call center, businesses of all sizes and customer levels in nearly every industry can benefit from IVR. 

Companies that hold private or sensitive data, such financial institutions and healthcare organizations, often implement IVR systems. These companies let customers check their account balances or hear important medical test results without sharing personal information with anyone or having their call recorded for training purposes. 

FYIFYI: You’ll also find IVRs in promotions and updates, when gathering survey data, and whenever customers need crucial information.

What are the benefits of IVR?

IVR systems lower costs by reducing the time agents spend gathering information and routing calls manually. However, IVR technology is mutually beneficial for businesses and customers. IVR helps businesses cut costs while providing customers with an efficient service or sales experience. 

IVR automatically gathers pertinent data and ensures a caller doesn’t have to repeat their inquiry multiple times. It increases the likelihood of giving agents problems they can solve, while customers avoid being transferred to multiple departments. What’s great about IVR technology is that most of the problems it solves will positively impact businesses and customers simultaneously.

Business benefits of IVR

  • You can automatically collect valuable customer data.
  • You can deploy fewer live agents.
  • Agents can hit the ground running with callers.
  • It gives a professional impression of your company.
  • It reduces data-entry errors.

Customer benefits of IVR

  • It has shorter hold times.
  • They’ll go through fewer transfers.
  • They can reach a live agent who’s prepared to help on the first try.
  • It has self-service options. 
  • It’s available 24/7.

How do you implement IVR?

To implement an IVR system, you’ll need to acquire the capability via a cloud-based business phone system. Many providers, including RingCentral, offer auto-attendant features that function as automated receptionists to greet callers and route them to the appropriate departments or employees to help resolve their issues. Learn more in our RingCentral review.

You can usually configure IVR systems with a drag-and-drop “call tree” interface accessible through a web browser. This easy-to-use visual tool lets you design and customize an IVR menu and call flow to your exact specifications. 

Other business phone providers, such as Dialpad, make implementation manageable with preconfigured routing options that let you choose an agent to answer calls based on longest idle, fixed order, round robin, skills and random selection – which can be especially useful in sales scenarios. 

In Dialpad’s system, you may also choose the “other routing options” feature to send calls to voicemail, use direct-to-message routing, transfer a call to a specific department, or send a call anywhere else you’d like. Learn more in our Dialpad review.

All modern IVR systems include the ability to set call routing during and after business hours and amid special circumstances, such as holidays. While getting an IVR system up and running is relatively easy and inexpensive, implementing it effectively requires you to have a detailed understanding of your inbound callers’ needs as well as your team’s capabilities. 

Bottom LineBottom line: Getting your IVR up and running efficiently requires a comprehensive understanding of your customers’ needs as well as your support team’s capabilities.

Best practices for using IVR

An automated phone system that doesn’t seem to understand your simple requests or have an option to route you to a human is among the worst customer experiences possible. That’s why it’s important to consider some simple best practices when setting up and using a new IVR system. 

Generally speaking, it takes a thorough understanding of your callers’ historical and future needs, in addition to your team’s capabilities, to design and implement an efficient IVR system. 

1. Keep it simple.

Simplicity is the most crucial aspect of an effective IVR system. That means keeping recorded messages brief and limiting menu options to those that can be easily understood and likely remembered by a caller who’s hearing the list for the first time. 

TipTip: Remember that callers may not be sure which option is the best for their needs and will likely want to consider all available options before selecting the best one.

2. Don’t hide your agents.

A properly designed IVR menu will always include an option to reach a live agent. While you may be tempted to force your callers to self-select into your well-crafted IVR menu to provide the best support possible, you may be setting up people for frustration. 

Even the most robust menu options and advanced voice recognition capabilities won’t serve every caller’s needs. Withholding the option to get callers to a live agent quickly can make them feel neglected, leading to a poor customer experience that may subsequently take additional time and resources for a live agent to help resolve.

3. Limit repetitive announcements.

It will be difficult for a customer to believe their call truly is your priority if they’re reminded about it every 30 seconds while on hold for extended periods. Try to keep your announcements limited to call transfers, letting callers who’ve been on hold prepare to connect with a human.

4. Consider a non-primary language.

Providing an additional or non-primary language option at the end of your menu recognizes the preferences and requirements of millions of potential customers. For example, the United States has the second-largest population of Spanish speakers in the world. In fact, 13% of the U.S. population speaks Spanish at home, and by 2050, as many as 1 in 3 people in the U.S will speak Spanish.

5. Note the information you gather.

Ensure that the information you collect through your automated system is provided to your agents for a mutually beneficial experience. Otherwise, your IVR may come across as efficient for your business at the expense of your customers, who will have to repeat themselves multiple times.

What does an IVR cost?

Older on-premises systems can cost upward of $1,500 per line, with additional fees for configuration, maintenance and software updates. You could theoretically implement a cloud-based IVR for as low as $15 per month, but the way cloud-based phone systems are priced means it’s not quite that simple. 

IVR functionality is generally among the features of business phone systems and the best call center services. Most of these cloud-based communication platforms are priced per user in monthly or annual terms. So, while you could technically implement an IVR system with a single user account for as low as $15 per month, your ability to route all your calls to a live agent who can take advantage of your modern phone system’s features would likely require additional users and associated user fees. 

Custom enterprise-level pricing is typically available at a lower cost per user for companies with more than 100 subscribers.

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jacoblund / Getty Images

Jeff Hale
Jeff Hale
business.com Contributing Writer
Jeff Hale is a writer and editor based in San Diego with a background in business development and marketing. He has identified new market opportunities for Fortune 500 companies and developed communications strategies and digital branding for tech startups and small businesses. Jeff covers emerging technologies and business solutions with a focus on efficiency and growth. He holds a Bachelor’s degree in English from the University of California, Irvine, and an MBA from Chapman University.