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What Is PBX?

Jeff Hale
Jeff Hale
business.com Contributing Writer
Updated Jul 01, 2022

Private branch exchanges are a good choice for businesses that want to connect multiple offices and want to make and receive phone calls without relying on a traditional telephone company.


When you’re running a business, a reliable and robust phone system is a necessity. The best business phone systems come equipped with valuable tools and features that make communicating with your clients and customers easier. A private branch exchange (PBX) is the technology needed to access these tools and features. As your business considers different communication options, you should understand what a PBX system is and the value it offers.

What is PBX?

A PBX is a popular, multi-line business phone system used to make, receive and route phone calls. Traditional PBX systems are hosted onsite with private hardware that allows businesses of all sizes to maintain complete control over their internal and external phone communications. However, more businesses are making the move to cloud-based PBX solutions that use the internet and a top VoIP service provider that maintains all the necessary phone system hardware. There is also a hybrid solution, known as SIP trunking, that 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. Generally speaking, the simplicity and control offered by cloud-based or hosted PBX is why businesses of all sizes are leaving their older hardware-intensive PBX systems behind. Business owners looking for a new business phone system should understand the costs of owning and maintaining older PBX hardware versus the need for a solid business broadband connection with any cloud-based solutions.

How does PBX work?

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

In traditional PBX systems, data is transmitted via copper telephone landlines from an onsite server to a local telephone company connected to a public switched telephone network (PSTN) for external calls. For internal calls, everything is handled through the onsite hardware without any need for a service provider or access to the public networks. Traditional systems were originally popularized as a way to minimize calling costs, especially for internal office calls that didn’t require the phone company’s hardware or service to complete.

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 is transmitted over the internet, so it’s easy for business owners to update their virtual PBX on the fly through a web browser. 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 localized phone numbers anywhere you’d like to have a local presence.

FYIFYI: There are three commonly used PBX technologies, all of which provide efficient and cost-effective phone service.

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

Pros

Control over your communications is one of the more significant benefits of moving to any PBX system. 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 when they dial in. Since the system does not communicate with the internet, there is no risk of an online data breach or any Wi-Fi interruptions. Cloud-based solutions also mean you can manage your entire phone user group and setting from a web browser.

PBX systems are cost-effective compared to paying for 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 with their own equipment. 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 offer AI-powered integrations that can take notes from a conversation, create a follow-up to-do list after a meeting, and offer sentiment analysis of each conversation to better inform business decisions and free staff to focus their time and energy on high-value tasks. 

Cons

Older on-premises PBX systems require you to purchase and maintain your hardware with upfront and annual costs in the 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. Businesses interested in a PBX system will also need to consider the purchase of phone hardware for each user.

For cloud-based systems, recurring service fees with a decently featured subscription plan cost upward of $30 per month for each user in your organization. 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.

Types of PBX

The three main types of PBX phone systems are cloud or hosted PBX, on-premises PBX, and PBX SIP trunking. On-premises PBX systems are old technology by today’s standards. Traditional on-premises systems are largely being replaced by cloud-based and, to a lesser extent, hybrid solutions through SIP trunking.

Cloud PBX

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 they 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. This includes the ability to instantly update users, maintain call routing schedules, record calls, and engage auto-attendants. Team members can access the phone system from anywhere they have an internet connection. The biggest downside of cloud PBX systems is that they require a decent internet connection to make or receive calls.

Did you know?Did you know? Cloud-based phone systems don’t require expensive hardware, installation or maintenance.

On-premises PBX

Often referred to as “traditional PBX,” on-premises PBX involves specialized onsite hardware and software to complete phone calls. While these systems are more expensive to install and manage, they are highly customizable with a low monthly cost per user. 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 a far more reliable choice for many businesses with headquarters outside of a major city. Another advantage is the optional uninterruptible power supply that ensures 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 turn to 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 the standards of SIP. 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 to 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 physical hardware to handle additional 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 in decline for some time. For the basis of our comparison, we assumed a company size of 20 employees or phone users. Businesses of this size can expect upfront costs of $14,500 for an on-premises system, compared with $2,000 for a cloud-based system. Annual recurring costs for on-premises systems run about $16,800, while cloud fees are closer to $7,200 per month based on a $30 monthly plan for each user.

FactorsCloud PBXOn-premises PBX
Setup time and costsThere are no setup fees or waiting in most cases.Equipment installation can cost more than $1,000 and takes time to schedule.
Hardware maintenanceThere’s nothing to maintain for the long term.You’re responsible for purchasing and maintaining onsite hardware that costs upward of $6,500.
Recurring costsThere are monthly user fees of around $30, with less expensive entry-level options available.Annual PBX software fees can reach up to $4,000 per year in addition to phone lines and other expenses.
ReliabilityRobust 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.
DevicesYou can communicate through many internet-connected devices and phones from any location.You’re limited to traditional business phones in a fixed location.
FeaturesFeatures 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.

PBX providers

If you’re searching for a new PBX provider, you’re in luck. Our editorial team spent weeks evaluating dozes of this year’s top-rated business phone systems – many that include some form of PBX as an available service. Entry-level pricing generally starts between $12 and $20 per monthly user with cloud-based solutions. Most providers offer a free trial period of up to one month. Here are some top options to consider:

RingCentral

RingCentral offers virtual PBX systems that unite in-office staff and remote workers anywhere in the world through a seamless communications system. RingCentral’s app for smartphones and tablets offers all of the functionality of a business phone system, including calling, texting, faxing, conferencing, online meetings, virtual phone numbers and access to your company’s directory. Growing your company’s phone system is easy through the admin portal, where you can add new or temporary employees, change group or individual settings, and purchase devices. 

RingCentral MVP is available through one of four subscription plans that range from around $19.99 to $49.99 per monthly user, with discounts available for larger businesses. Learn more in our full review of RingCentral.

Nextiva

Our choice as the best phone system for its integration capabilities also makes a fantastic PBX provider. Nextiva’s cloud PBX phone system includes VoIP phone service with unlimited calling in the United States and Canada, SIP trunking, texting, screen sharing, HD video conferencing, real-time voice analytics, and integrations with enterprise-grade reliability backed by a 99.999% uptime. Nextiva also makes it easy to obtain toll-free numbers and free local numbers in any area code you need.

Pricing for their two available subscriptions is between $21.95 and $31.95 for large businesses, with slightly higher fees for companies with fewer users. While Nextiva’s lower-priced professional plan comes with a long list of powerful features and tools, the enterprise plan’s added CRM and business integrations, real-time voice analytics, and call recording make it an attractive option. Learn more in our comprehensive review of Nextiva.

GoToConnect

It should come as no surprise that the best phone system for features and tools has a robust suite of resources through GoToConnect PBX Admin. These tools make it easy for business owners and administrators to manage features such as voicemail, hold music, recorded greetings, unlimited extensions, conferencing, and the ability to oversee all phone activity across your company. Other features include visual dial plan flows, custom schedules for time-based routing, and web-based portals for users and admins. GoToConnect offers three plans that start at $24, $29 and $39 per monthly user. Learn more in our full GoToConnect review.

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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.