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Types of Phone Systems for Small Businesses

Updated Jan 03, 2024

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Mark Fairlie
Mark Fairlie
Senior Analyst & Expert on Business Ownership at business.com
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Although many customers use email and messaging apps to contact businesses for service, support and queries, a significant segment still prefers speaking with company representatives on the phone. Additionally, numerous businesses and sales reps rely on telephone-based marketing to generate new leads and sales.

While voice calling may no longer dominate business communication, it still plays a crucial role for consumers and companies alike. We’ll outline various phone system types and features to help you choose the right business phone system for your organization. 

What are the different types of phone systems?

Three primary business telephone system types exist: 

  • Key system unit (KSU)
  • Private branch exchange (PBX)
  • Voice over Internet Protocol (VoIP)=

Each type has cloud-based phone system options and on-premises versions. Here’s a breakdown of each type and how they differ.

Editor’s note: Looking for the right business phone system for your business? Fill out the below questionnaire to have our vendor partners contact you about your needs.

KSUs

KSU phone systems are the most basic phone system type. Given their phone line limitations, they’re only suitable for small businesses with at most 40 employees. 

KSU phone systems are easy to use and comparable to home telephones. They have many essential features businesses need. However, they lack portability and flexibility. KSU phone systems use a central switching device ― the KSU ― to determine phone-line selection manually.

KSU phone systems have a variation called KSU-less phone systems. KSU-less phone systems don’t use a central switching unit and are completely wireless, making them portable and flexible. However, KSU-less systems have severe limitations. They allow only approximately 10 phone operators and are not sold commercially. You must request a KSU-less system from a phone system provider. KSU-less phone systems are ideal for very small businesses that don’t intend to expand their workforce. They’re not suited to small businesses with a growth mindset.

Pros and cons of KSU phone systems

Pros

Cons

KSUs are intuitive and easy to use.

KSUs are limited to 40 phone lines.

KSUs have all the basic telecommunications features a business needs.

KSUs are not portable or flexible.

KSUs allow you to determine an appropriate phone line manually.

KSUs don’t offer the versatility growing businesses need.

PBX

PBX is another business phone system option. PBX phone systems are more advanced KSU and KSU-less systems. They use programmable switching devices that enable automatic incoming call routing.

PBX phone systems are suitable for businesses with 40 or more employees because they’re largely automated. PBX phone systems have uninterruptible power supplies ― a significant advantage that allows a business to remain functional without electricity for some time.

A hosted PBX system, sometimes called a cloud PBX, is a PBX system modification. In a hosted PBX system, the programmable switching device isn’t installed on-premises ― a telephone provider hosts it. Its primary advantage is that you’ll avoid some of the installation and maintenance costs of standard PBX systems without losing any advanced features.

However, the writing is on the wall for the traditional PBX system. Panasonic stopped manufacturing them in 2023. Although there are digital PBXs you can host in your office, modern VoIP systems can outperform them on almost every metric for a lower price.

FYIDid you know

A PBX multiline phone system routes calls via the main line, so the office can screen and redirect calls as necessary.

Pros and cons of PBX phone systems

Pros

Cons

PBX phone systems can automatically route incoming calls.

A dedicated team is required to manage your PBX configuration.

PBX phone systems can serve companies with many employees.

Your business is responsible for all PBX phone system maintenance.

PBX phone systems have dedicated power sources to stay up and running during electrical interruptions.

Redundancy issues can occur between worksites.

VoIP

VoIP is a popular business innovation that requires the internet and a computer or internet-enabled device. Many VoIP phone system benefits exist because the technology is far more advanced than other business phone systems. For example, a potential client and a VoIP phone operator can communicate even if they’re in different countries.

User numbers determine VoIP system costs. However, they’ve generally become much cheaper than PBX phone systems. The primary benefit of a VoIP system is that all functions are accessible by computer via your company’s business internet network.

Like PBX phone systems, VoIP systems can be hosted. In a hosted VoIP system, the service provider hosts the central telephone system. Hosted VoIP systems offer the same advantages as basic VoIP systems but without installation and maintenance costs and hassles.  

Pros and cons of VoIP phone systems

Pros

Cons

VoIP-enabled devices allow increased accessibility for communication.

VoIP phone systems require a stable internet connection, limiting when and where you can use them.

You can use the internet to easily communicate from anywhere around the world.

Latency and bandwidth issues could create delayed or frozen communications.

VoIP phone systems are easily scalable to enable communications between more teams.

VoIP devices can be targeted for cyberattacks, but there are ways to protect yourself.

FYIDid you know

You must optimize your network for VoIP to enjoy calls that are as clear and sharp as those over traditional phone lines.

What features should business phone systems have?

Business phone systems allow companies of all sizes to manage inbound and outbound calls. Their features differ significantly from residential phone systems. A good business phone system must handle multiple calls simultaneously and transfer calls within the organization.

Today’s best business phone systems may include the following features:

  • Multiple lines: Multiple lines allow employees to switch between calls to better manage high-call-volume times. Your business’s size will determine how many lines you need. Small businesses usually work well with two to four lines.
  • Auto-attendant: An automated attendant uses interactive voice response technology to greet callers and route them to the right team member. 
  • Visual voicemail: Voicemail systems for business phones can transcribe voicemails and send transcripts directly to the appropriate employee by email or text message.
  • Conference calls: Meetings can be scheduled by phone, with multiple callers participating in the conference call. This feature is a must for organizations with remote work plans.
  • Call forwarding: Calls can be forwarded to another number or even to an email address.
  • On-hold messages: You can record a message that lets people on hold know their call will be answered as soon as possible. You can also play music over the line while the caller waits.
  • Headset support: Modern business phone systems should be compatible with wired and wireless headsets.
TipBottom line

When choosing a business phone system, examine each provider’s features and confirm the vendor has a solid track record with good client reviews and readily available customer service.

What is the average cost of a business phone system?

Top business phone system costs generally range from $10 to $20 per user. For example, NextivaONE has a service plan that charges $10 per user, per month, while Ooma Office has a plan that starts at $19.95 per user, per month.

However, as with any business service, numerous factors will affect your costs, including the following: 

  • Number of lines you need: Bundled line services are an option for larger businesses. For smaller businesses, each new line multiplies monthly costs.
  • Phone service type: The type of phone service you select will affect your costs. For example, landline and VoIP prices will be different. 
  • Features and functionality: Your per-line or per-user price will fluctuate based on the functionality you need, such as whether you must hold online meetings, video conferences or teleconferences. Other features that will affect your price include answering services, mobility services, message storage, extra support and access to other popular communication mechanisms. 
FYIDid you know

Replace your home phone line by using your internet network to connect alternative VoIP devices like a tablet, smartphone or laptop.

The best business phone systems

There are hundreds of phone system providers available for companies to choose from in the United States. We’ve highlighted eight of the best business phone system providers to help you decide.

RingCentral

  • Price: From $20 per person, per month
  • Free trial: 14 days
  • Video meeting capacity: 100 to 200 participants
  • Internet fax: Yes
  • Short message service (SMS)/multimedia messaging service (MMS) limit: 25 to 200 per business

Read our in-depth RingCentral review to learn more about the vendor’s collaborative communication features, service and support.

Ooma

  • Price: Custom pricing
  • Free trial: 30-day money-back guarantee
  • Video meeting capacity: 25 to 100 participants
  • Internet fax: Yes
  • SMS/MMS limit: Unlimited SMS/MMS

Read our comprehensive Ooma review to learn about this easy-to-use business phone system and its generous support.

Vonage

  • Price: From $13.99 per person, per month
  • Free trial: Credit-based for APIs only
  • Video meeting capacity: 100 participants
  • SMS/MMS limit: Unlimited SMS/MMS

Zoom

  • Price: $10 per person, per month
  • Video meeting capacity: 100 to 1,000 participants
  • SMS/MMS limits: Varies according to service tier
  • Unlimited international calling: Yes, as an add-on

Our Zoom review shares more about this platform’s scalability and customizability.

NextivaONE

  • Price: From $10 per month, per user
  • Video meeting capacity: 25 to 250 participants
  • Internet fax: Yes
  • SMS/MMS limits: Unlimited SMS/MMS

Read our in-depth review of NextivaONE to learn about this platform’s extensive analytics and reporting capabilities. 

Dialpad

  • Price: From $15 per user, per month
  • Free trial: 14 days
  • Video meeting capacity: 10 participants
  • SMS/MMS limits: Unlimited SMS/MMS

Read our comprehensive review of Dialpad to learn about this platform’s helpful features, like a multi-level auto-attendant and built-in speech recognition tools.

GoTo Connect

  • Price: From $27 per user, per month
  • Video meeting capacity: 4 to 150 participants
  • Internet fax: Yes
  • SMS/MMS limits: 40 to 80 per user, per month
  • Unlimited international calling: Yes

Read our review of GoTo Connect for more on this platform’s cybersecurity tools and bundled plans.

8×8

  • Price: Custom pricing
  • Video meeting capacity: 500 participants
  • Internet fax: Yes
  • SMS/MMS limits: Unlimited SMS/MMS
  • Unlimited international calling: Yes

How often should you upgrade your phone system?

For mobile phone systems, the general practice is to upgrade every two years. This prevents maintenance problems with mobile phones and ensures that the business operates with up-to-date systems.

This cycle can be pricey, so there are two other ways to determine if it’s time to upgrade your business phone system:

  • Functionality: If your phones are working fine, keep them. Don’t upgrade until they start to show consistent problems. This measure can slow the average upgrade time to every five years for many businesses.
  • Feature-based upgrades: You might decide to upgrade when a new feature will impact your business operations significantly. For example, when cell phones became smartphones, new productivity benefits emerged that many businesses ultimately adopted. The migration from 3G to 4G had a similar impact. Today, 5G is becoming more available and the increased capabilities could benefit many businesses. Any significant upgrade that will generate a clear return on investment is worthy of your attention.

Eduardo Vasconcellos contributed to this article.

Mark Fairlie
Mark Fairlie
Senior Analyst & Expert on Business Ownership at business.com
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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