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Updated Apr 09, 2024

What Is PBX?

Mark Fairlie
Mark Fairlie, Senior Analyst & Expert on Business Ownership

Table of Contents

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Almost every business needs a reliable and robust phone system. Private branch exchange (PBX) is a highly customizable phone system that comes with valuable tools that make it easier to communicate with clients. 

We’ll explain what a PBX does, the different types of PBX systems and whether your business should invest in one.

What is PBX?

graphic of a large phone surrounded by icons

A PBX is a multiline business phone system that’s used to make, receive and route phone calls. 

Traditional PBX systems allow businesses of all sizes to take complete control over their internal and external phone communications. They are hardware-based solutions installed on-site at your business.

There are also cloud-based PBX solutions (sometimes called hosted PBXs) that use Voice over Internet Protocol (VoIP) technology. All you need to get started is a standard business broadband connection.

There’s a third, hybrid option that’s sometimes called SIP trunking. It combines traditional PBX hardware and VoIP technology for multichannel voice services. 

The more robust PBX systems offer features such as auto-attendants, voicemail management, recorded messages, and many additional tools for automation and productivity. 

In recent years, companies have migrated to cloud-based PBX, for several reasons. They’re much easier to use than older hardware-based on-premises PBX systems, which often require programmers to configure the systems. Cloud-based PBX systems also offer more features than traditional PBXs do. Setup costs are often negligible, as the systems use a variety of hardware you already own, like PCs and mobile devices, to make and receive calls. Month-to-month costs can also be much lower. 

How does PBX work?

Think of all PBX systems as the evolution of an old-fashioned switchboard and operator who routes calls. While each of today’s main PBX technologies works differently due to the hardware required, their role of handling all telephone communications as efficiently as possible remains the same.

>> Learn more: Need a Business Phone Number, But Not a Business Phone?

In traditional PBX systems, data is transmitted via copper telephone landlines from an on-site server to a local telephone company that’s connected to a public switched telephone network for external calls. For internal calls, the on-site hardware handles everything without any need for a service provider or access to the public network. Traditional systems were originally popularized as a way to minimize calling costs, especially for internal office calls that didn’t need the phone company to route them.

In cloud-based PBX systems, the on-premises hardware is moved to the cloud, where it’s hosted and managed by a VoIP service provider. All communications data and traffic are routed over the internet. Business owners can update and configure their virtual PBX through a web browser and do not have to call in a specialist technician like they often have to with a traditional PBX. 

Employees also gain the flexibility of making and receiving calls using their business number or extension from a multitude of internet-connected devices and mobile phones. Another benefit of using the internet to make calls is the option for local phone numbers anywhere you want a presence.

Did You Know?Did you know

Many entrepreneurs wonder how often they should upgrade their existing business phone system. The answer varies from company to company, but it might be a good idea to look for alternatives if call quality and platform speed worsen significantly. This also may be an excellent time to assess what functionality you want from your system in the future to determine whether your current system can deliver what you require.

Types of PBX

The three main types of PBX phone systems are cloud or hosted PBX, on-premises PBX and PBX SIP trunking. 

An on-premises PBX system is a legacy technology by today’s standards. Traditional on-premises systems are largely being replaced by cloud-based systems and, to a lesser extent, hybrid solutions through SIP trunking.

Cloud PBX

graphic of businesspeople talking on phones

Also known as hosted PBX, cloud PBX is a private branch exchange network that handles telephone communications over an internet connection. Cloud-based business telephone systems are an excellent choice for startups and small businesses because these systems don’t require expensive hardware, installation or maintenance. 

Once you find a service provider, you’ll be able to manage all of your employees’ telephone lines from a web browser. These capabilities include adding and removing lines and numbers, instantly updating users, maintaining call routing schedules, recording calls and configuring auto-attendants (virtual receptionists that offer callers options that they select by pressing keys). 

Team members can access the phone system from anywhere they have an internet connection. The main disadvantage of cloud PBX systems is that they require a decent internet connection to make or receive calls.

FYIDid you know

Many cloud-based phone system providers offer free trials so business owners can try the system before committing to it.

On-premises PBX

Often called “traditional PBX,” on-premises PBX requires the installation of on-premises hardware and the configuration of software. While these systems are more expensive to install and manage, they are highly customizable and have a low monthly per-user cost. This type of PBX phone system is popular for companies with more than 40 employees because it automates most calling features. 

On-premises systems do not rely on an internet connection, so they are far more reliable. This makes them a good choice for businesses in rural locations. Another advantage is the optional uninterruptible power supply, which ensures that companies can maintain an open line of communication during a power outage or other emergency that could hinder other forms of communication.

PBX SIP trunking

Some businesses with traditional PBX systems that want to combine the benefits of modern cloud phone systems with the control of on-premises hardware can choose SIP trunking.

Session Initiation Protocol (SIP) enables end-to-end communication through the internet, much like VoIP technology. In fact, both communications technologies are built on SIP standards. 

The SIP trunk functions as a virtual bundle of traditional phone lines placed between your existing PBX hardware and your VoIP service provider, effectively converting your landline system into a cloud-based VoIP phone system

SIP trunking systems make it easy for companies with older hardware to scale by increasing internet bandwidth instead of adding physical hardware to handle more lines or higher call volumes.

Cloud PBX vs. on-premises PBX

Many companies switch to cloud PBX from their legacy on-premises systems for flexibility, improved collaboration, advanced features and, in some cases, reliability. While some companies still prefer on-premises systems, their popularity and market share have been declining for some time. 

For our comparison, we’ll use an example of a company that needs phones for 20 of its staff. Businesses of this size can expect upfront costs of up to $20,000 for an on-premises system, compared with $400 for a cloud-based system. This estimate assumes the company didn’t invest in new equipment, like phone handsets. This $400 is not a setup fee, either; it’s the first month’s service charge.

Annual recurring line rental costs for on-premises systems run about $12,000 before other costs, like maintenance and software fees. Cloud system fees are closer to $4,800 per month based on a $20 monthly plan for each user. Cloud-based PBX providers offer a range of plans with more features as the monthly price gets higher; the cheapest plan is $10 per month, available from Zoom. There may be little difference in monthly costs between traditional and cloud-based PBXs on the most feature-laden subscription levels.

Factors

Cloud PBX

On-premises PBX

Setup time and costs

There are no setup fees or waiting in most cases.

Equipment purchase and installation can cost up to $1,000 for each person connected and takes time to schedule.

Hardware maintenance

There’s nothing to maintain for the long term.

You’re responsible for purchasing and maintaining on-site hardware, which costs $60 or more per user annually.

Recurring costs

Fees start at around $10 per user per month.

PBX software fees can reach $4,000 per year in addition to the costs of phone lines and other expenses.

Reliability

Robust systems with multiple redundancies and data centers worldwide ensure high signal quality and reliability.

Uninterrupted power backups offer high reliability, and there’s no dependence on a high-speed internet connection.

Devices

You can communicate through many internet-connected devices and phones from any location.

You’re limited to traditional business phones in a fixed location.

Features

Features include unlimited local and long-distance calling, localized and toll-free phone numbers, 24/7 customer support, integrations with popular business software, and softphones.

Features include call management by programmable schedule, call transfer and custom routing rules, custom greetings and hold music.

Pros and cons of PBX for businesses

PBX systems allow businesses of all sizes to connect multiple office locations through one unified communications system, manage incoming calls based on schedules, transfer calls reliably and much more. Here are some pros and cons of PBX systems.

Pros

One significant benefit of PBX is control over your communications. With a PBX system, you can easily set call-routing rules based on a schedule to ensure your customers always reach the best person or voicemail inbox. Because the system does not communicate with the internet, there is no risk of an online data breach or Wi-Fi interruptions. Cloud-based solutions also mean you can manage your entire phone user group and settings from a web browser.

PBX systems are cost-effective compared with systems that include many individual landlines or mobile lines through a phone company. This technology was initially adopted as a cost-saving solution for businesses looking to make free internal calls within their own company. It significantly reduces the expense of multiple phone line extensions that use the same seven-digit phone number.

Cloud-based systems offer a long list of advanced features and automated tools designed to free employees from time-consuming tasks. Some business phone system providers, such as Vonage, offer AI-powered integrations that can take notes from a conversation, create a follow-up to-do list after a meeting, and offer an analysis of each conversation to better inform business decisions and free staff to focus on high-value tasks.

Cons

Older on-premises PBX systems require you to purchase and maintain your hardware, which can cost thousands of dollars. These older systems limit users based on physical hardware and server space, making it difficult to scale your phone system as needed. A business that uses a PBX system also needs to purchase phone hardware for each user.

For cloud-based systems, recurring service fees with a midlevel subscription plan can cost upward of $10 per user per month. Traditional PBX systems often require an annual software subscription as well. The monthly subscription fees for a virtual PBX phone system can add up very quickly for larger companies.

Bottom LineBottom line

Whatever type of PBX system you use, there are benefits and drawbacks to consider when you’re choosing a business phone system.

Should your business switch to PBX? 

You should switch to PBX if …

  • You’re growing your business and you need to add more users and lines.
  • You’re interested in features such as auto-attendants, voicemail management, call recording, hold music and hunt groups.
  • You’d like to record, analyze and archive all communications with customers within your customer relationship management (CRM) system. (Make sure your choice of PBX integrates with your PBX provider.)
  • Remote work is important to your business. You want your team to be able to make and receive calls from anywhere and for your PBX to record those calls.

You should not switch to PBX if …

  • You’re based in an area with unreliable internet connectivity (applicable to cloud-based PBXs and not traditional PBXs).
  • You don’t need the advanced features and configurations that PBX systems offer.
  • The upfront costs of installation and ongoing costs of maintenance are too high for your business.
  • Your phones are never busy enough to justify the need for multiple lines and sophisticated call routing.

Best PBX providers

The best business phone systems are easy to use, offer affordable pricing and provide a range of features you can customize to suit your business. Below, you’ll find our picks for the top cloud PBX system providers and links to in-depth reviews of their services.

Vonage

Vonage’s cloud-based PBX solution comes packed with features, including multilevel auto-attendants, call groups, voicemail management, call monitoring and call recording. Plans start at $17.99 per user per month. Users appreciate the platform’s straightforward setup, intuitive interface, and easy connectivity with CRM systems and other apps. The HD voice feature delivers excellent call quality, and you can bring your existing numbers with you.

Read our in-depth Vonage review.

GoTo Connect

GoTo Connect PBX makes it easy for businesses to configure useful features, like voicemail, hold music, recorded greetings, unlimited extensions, conferencing, time-based routing and visual dial plan flows. The level of control and customization is excellent, and prices start at $27 per user per month.

Read our comprehensive GoTo Connect review.

Zoom

Priced from $10 per user per month, Zoom is eminently scalable and flexible. The user-friendly interface makes it easy to configure the system to connect your office-based, mobile and remote workers. There’s a full range of call management tools, including call transfer, parking and forwarding, as well as native integrations with apps such as Gmail, Google Calendar, Microsoft Outlook and Slack. 

Read our latest Zoom review.

NextivaONE

This omnichannel PBX offers unlimited calling in the United States and Canada, on-platform SMS texting, HD video conferencing, real-time voice analytics, a wide range of third-party integrations and more. It’s also great at managing telephone traffic with advanced features such as auto-attendants, voicemail management and call routing. The AI-driven analytics on this enterprise-ready platform are excellent. Prices start at $27.95 per user per month on a 12-month contract.

Read our up-to-date NextivaONE review.

RingCentral

RingCentral’s scalable virtual PBX service is flexible and highly adaptable. Your in-office staff and remote workers can quickly and easily log in to your company network via the platform’s intuitive and superfast softphone app, which is available via desktop, laptop, tablet or cellphone. RingCentral also offers integrated and third-party support for texting, faxing, video conferencing and more. Pricing starts at $20 per user per month on annual billing. 

Read our in-depth review of RingCentral.

8×8

The enterprise-grade 8×8 cloud PBX is affordable, with pricing starting at $24 per user per month on annual billing. The platform offers a wide range of switchboard functionality, including auto-attendants, voicemail management, call recording, hot desking, secure HD voice and call routing. 

Read our comprehensive review of 8×8.

Ooma Office

Ooma Office’s business VoIP service can be set up in only 15 to 20 minutes. Plans start at $19.95 per user per month, and users benefit from a wealth of features, including call forwarding, virtual faxing, call transfer and voicemail transcription. The superb analytics provide actionable insight into how to improve staff’s customer interactions.

Read our latest review of Ooma Office.

Dialpad

Dialpad offers useful omnichannel switchboard features, like call routing, MMS, social media messaging and call forwarding. The system’s analytics tools stand out for monitoring individual, team and overall company performance in interactions with customers. Prices start at $15 per user per month and include unlimited calling to the U.S. and Canada.

Read our up-to-date review of Dialpad.

PBX FAQs

A PBX, or private branch exchange, is a private telephone network that’s used exclusively within a particular company. It lets people in the company call each other on internal lines and allows multiple employees to make and receive calls outside the company using the same phone lines.

Yes, PBX still exists, and organizations of all sizes use these systems.

FYI: Older PBXs primarily manage traditional landline voice traffic. Newer PBXs, often based in the cloud, manage voice traffic and other types of communication, like SMS, MMS, social media messaging and website chatbots.

No. A PBX is a type of technology that allows companies to manage incoming and outgoing telephone calls more efficiently. PBXs can manage voice and data traffic from traditional landlines or VoIP lines, depending on their make and configuration.

PBX and VoIP are two types of telephone technology. A PBX is a private network that companies and organizations use to manage internal and external communications more efficiently. VoIP (Voice over Internet Protocol) is a technology that allows firms to make telephone calls over the internet. Depending on the type of PBX and how it’s configured, it can carry VoIP traffic, traditional telephone traffic or both.

PBX systems can carry traditional phone line traffic or VoIP traffic. Modern PBX systems are often cloud-based and primarily carry VoIP calls and data. Older PBXs require hardware to be installed in your office, and they primarily carry traditional phone traffic. However, they can be amended to carry VoIP calls and data, too. In general, modern VoIP PBXs are cheaper than older PBXs.

Jeff Hale contributed to this article. 

Mark Fairlie
Mark Fairlie, Senior Analyst & Expert on Business Ownership
Mark Fairlie has written extensively on business finance, business development, M&A, accounting, tax, cybersecurity, sales and marketing, SEO, investments, and more for clients across the world for the past five years. Prior to that, Mark owned one of the largest independent managed B2B email and telephone outsourcing companies in the UK prior to selling up in 2015.
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