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Updated Jan 30, 2024

Should Your Business Switch to Cloud PBX?

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Simone Johnson, Business Strategy Insider and Senior Writer

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Cloud-hosted PBX phone systems have become increasingly popular in recent years. The ability to add a robust phone system with all of the features and tools you need, without having to install or maintain any equipment, is particularly appealing to many small businesses. However, for some organizations, a phone system that’s totally dependent on the strength of an internet connection is not ideal. 

Before you decide whether a cloud PBX system is right for your business, it is essential to understand precisely what a cloud PBX system is, how it operates, and its pros and cons.

What is cloud PBX?

A private branch exchange (PBX) system is a business-grade telephone network that enables communication within and outside your organization. The best business phone systems are different from residential or cell services in that they come with additional services, which typically include call conferencing, extension dialing, business-hour settings to route off-hour calls, customer waiting queues and hold music.

Cloud PBX, also known as hosted PBX or virtual PBX, is an IP-based PBX system that’s provided and accessed entirely through the internet. Cloud PBX systems host all software and data in the cloud, instead of on an on-site server as digital systems do.

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Digital vs. cloud PBX

Cloud phone systems are an offshoot of digital — or on-premises — PBX systems. These systems offer the same level of functionality but differ in where the equipment is located and how it is maintained. The cost structures of the two systems also set them apart. 

  • On-premises/digital phone systems: On-premises phone systems have PBX equipment housed in large hardware units that must be stored on-site. On-premises systems can be very costly because they are large and require a special storage facility. Companies are also on the hook for expensive regular maintenance because the machines are complex and require professional attention. Digital PBX phone systems are monitored using a PBX switchboard. The switchboard processes the connections between telephones to facilitate calls and control many business-grade phone system features.
  • Cloud PBX: Cloud PBX takes all the functionality of a digital system and moves it into a virtual space, eliminating the need for hardware and other equipment and saving you money on installation and maintenance. Hosted PBX systems have become popular primarily because they are easier to use and provide all of the functions of a digital PBX platform (and more) without requiring clunky, costly equipment.
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A digital PBX phone system is an on-site solution with all equipment stored on servers inside your business. A cloud PBX system doesn’t require physical equipment; all equipment is stored in the cloud, making it a much more flexible option.

How does cloud PBX work?

Cloud PBX is an internet phone system in which the provider is responsible for housing the PBX equipment and providing your phone services. Your desk phone plugs into a router, and all calls, signaling and features are handled through a server at the provider’s physical location.

The PBX is responsible for routing incoming calls, enabling call transfers to other extensions and running your phone system’s communications features, such as call waiting and voicemail. Your system can be managed using a call flow, which is a collection of features and rules you assign to a given phone number.

How to use a call flow

A call flow helps you manage call routing. A call flow configuration lets you control when, where and how calls come in through your main business phone lines. You can set specific business hours for receiving calls, see caller locations, and control who receives the call. The call flow interface varies by provider, but most offer similar customization options for your hosted PBX solution.

For example, you can specify which phones you or your employees use, in what order those phones should ring (parallel or in a sequence), and the call handling rules if no one answers.

What are the benefits of cloud PBX?

Cloud PBX phone systems bring numerous benefits to businesses, including the following:

Low cost

The greatest benefit of a hosted cloud PBX system is its low cost. You can save in the following ways: 

  • Limited equipment costs: Because a hosted PBX system is provided as a service, you don’t have to purchase physical equipment unless you want desktop phones with VoIP capabilities. 
  • Low installation and maintenance costs: The lack of equipment also helps you save on installation and maintenance costs. All services and features are fully hosted in the cloud and maintained by your provider; the cost of your phone service covers regular updates and maintenance. Most providers offer online portals where you can manage your phone lines, updates and maintenance needs.
  • Control over feature costs and fees: With a hosted PBX solution, you have significant control over how much you pay because you pay only for the features and phone lines you need. Additionally, most cloud-hosted business phone systems offer unlimited domestic calling, so employees can use the phone as long as they want, without worrying about racking up added fees.

Features and flexibility

Cloud-based PBX systems offer these significant benefits regarding features and flexibility: 

  • Flexible locations: As the world moves increasingly to nontraditional and flexible workplace environments, businesses must be reachable anywhere, anytime. A hosted solution allows you to conduct business calls via your smartphone or computer as long as you have an internet connection. If you’re considering moving your business to a new location, you won’t have to worry about lugging equipment (except phones).
  • Customizable settings: Your employees can customize their phone settings to whatever works best for them. For example, they can have calls routed to both their desk phone and their computer or their desk phone and mobile phone. 
  • Business communication features: Cloud PBX also provides features such as texting, voicemail transcription, call recording and integration with vendor services. Features vary among systems, so you should determine the features your business needs and shop around for vendor offerings.

When you’re evaluating the business communication features you may need, consider the following helpful tools that many cloud-hosted PBX systems offer:

  • Online management: Administrators can add users, assign phone numbers, create ring groups, and review call reports and monthly statements from an online portal. Employees can log in to the portal to check their voicemail, see the company directory and set up call-forwarding routes.
  • Ring groups: Organize employees into ring groups by department or role. For example, the sales team may have its own ring group, and when a client calls to speak with a representative, everyone in that ring group is notified.
  • Voicemail-to-email: This feature lets you send audio files or voicemail transcriptions to an employee’s inbox.
  • Call queue: Call queues help manage your influx of calls by placing callers in a line or on hold until an employee can take the call.
  • Unlimited calling: Many vendors offer unlimited calling, which allows employees to make as many domestic calls as necessary for no additional cost.
  • Video and web conferencing: Users can host video meetings with screen sharing, allowing users to view and discuss documents or presentations. Although call capacity varies among providers, some allow you to have up to 1,000 people on a call.
  • Instant messaging: This feature allows users to send online messages to co-workers.
  • Text messaging: Employees can send text messages from their business lines instead of their personal phone numbers.
  • Auto-attendant: Auto-attendants are basically virtual receptionists that answer calls and transfer callers to the appropriate employees. For example, a caller might hear an auto-attendant say, “Press 1 for sales, press 2 for customer service, or press 0 to speak with an operator.”
  • Extension dialing: Instead of punching in an employee’s entire phone number, employees can dial a few numbers to connect with co-workers.
  • Conference calling: You can host calls with hundreds, or sometimes thousands, of participants simultaneously.

Reliable service

Phone communication is the backbone of day-to-day activities for many businesses. For this reason, reliable service is a must. A traditional landline system uses copper cabling to transfer phone calls, and these cables are vulnerable to natural disasters, vandalism and general wear and tear, all of which could result in extended outages.

In contrast, cloud PBX systems use the internet, which means your phone service is as strong as your internet connection. Because all of your information is in the cloud, your system should experience little or no downtime if there’s an issue. Geographic redundancy — when the provider has several servers in different physical locations — is one of these systems’ most common reliability measures. Each server contains identical information, so if one fails, another can take its place almost instantly. 


Ensure you use one of the best business internet services so your business can stay connected amid high internet traffic or outages.

What are the cons of a hosted PBX system?

Although hosted PBX systems are popular, they are not the best option for all businesses. Here are some possible drawbacks:

  • Reliance on your internet connection: If you lack access to high-speed internet, have a poor internet connection or cannot properly secure your connection, cloud PBX may bring you more frustration than it’s worth. The system depends entirely on the internet and will not function correctly without a strong connection. If your internet service provider is unreliable or frequently drops your internet service, hosted PBX is not a good fit for you.
  • Security concerns: Because hosted PBX systems are internet-based, they’re more susceptible to security breaches than digital systems are. When you speak to vendors, ask about their security measures and how they protect your data. You should ensure they have both physical and network security, SIP trunk endpoint security, toll fraud monitoring and detection, and a dedicated monitoring system that alerts you to any suspicious activity.

Should your business switch to cloud PBX?

In almost all cases, yes, your business should switch to cloud PBX. This is especially true if you manage a remote workforce and need a way to conduct business calls without giving away employees’ personal phone numbers. You’ll also look much more professional with business phone numbers that all start with the same area code. Plus, for customer service or sales teams, taking calls in quiet home environments instead of loud, conversation-heavy offices can be a welcome change.

There are only two cases in which you might want to avoid cloud PBX:

  • Your business is in an area with poor connectivity. Cloud PBX may not be suitable for you if your business is located in a rural area with a history of spotty or low-quality internet connectivity. This limitation obviously interferes with the ability to easily use cloud PBX, though the Federal Communications Commission’s recent rural broadband expansion may help to combat this issue. 
  • Your business has a poor cybersecurity infrastructure. You might want to avoid PBX if your company has struggled to maintain a robust cybersecurity profile. Although cloud PBX platforms come with plenty of cybersecurity features, they can only go so far if your own cybersecurity infrastructure is lacking. 

If you need to shore up your cybersecurity infrastructure, set up a VPN. Taking this one simple step tremendously fortifies the cybersecurity of in-person and remote teams.

Taking your business phone system to cloud nine

Almost all businesses should make the switch to cloud PBX, and several high-quality platforms are available to power your transition. Utilize any free trials you encounter as you compare systems, and implement the platform you liked best. Train your team on your new software, and you’ll be off to a great start in improving your internal and inbound communications.

Max Freedman and Kiely Kuligowski contributed to this article.

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Simone Johnson, Business Strategy Insider and Senior Writer
Simone Johnson advises small business owners on the services and resources needed for not only day-to-day operations but also long-term profitability and growth. She's long had an interest in finance and has studied economic trends affecting the financial landscape, including the stock market. With this expertise, Johnson provides useful instruction on everything from EBITDA to payroll forms. In recent years, Johnson has expanded her purview to include advertising technology and digital marketing strategies. She has spent significant time profiling entrepreneurs and helps companies with brand objectives and audience targeting. Johnson holds a bachelor's degree in communications and a master's in journalism.
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