What’s the difference, and which solution is right for your business?

Good communication is vital to running an efficient, modern business. Your company needs the right kinds of tools to make that happen. Most businesses choose between an on-premise phone system and a cloud or hosted PBX phone system. Deciding which one is best for your organization requires an in-depth understanding of both types of technology. 

On-premise phone systems and cloud/hosted PBX (Private Branch Exchange) systems represent two fundamental approaches to managing business telecommunications. In the following sections, we’ll detail the specific differences between premise-based phone systems and their cloud/hosted PBX counterparts, going in-depth on each major point so that you can reach a full understanding of these services. Let’s start with the most obvious one.

Location of the Hardware

  • On-Premise: All the necessary hardware, including the PBX equipment, is located on-site at the business location. This means businesses own and manage their own infrastructure when they choose a premise-based phone system.
  • Cloud/Hosted PBX: The main PBX hardware is hosted off-site, often in data centers managed by a third-party provider. Businesses typically access the service via the internet. The only physical aspects of their communication system they’ll ever access are the phones, speakers, or other devices they use, but they’ll never need to interface with the PBX equipment.

Initial Investment

  • On-Premise: Because the business owns and manages their own infrastructure, on-premise phone systems require a significant upfront capital investment in equipment and installation. This is one of the largest considerations for most companies looking to install a premise-based phone system.
  • Cloud/Hosted PBX: The opposite is true of this option. Typically, there is a lower initial investment with cloud or hosted PBX since you’re not purchasing hardware. Instead, businesses usually pay a monthly subscription or service fee. There are still certain initial fees involved, of course, and the business might have to purchase phones or computers in order to make sure all employees are able to use the communication system. However, these costs are sometimes already in place, and they usually are not as much of an expense as purchasing and installing an on-premise phone system. 


  • On-Premise: Businesses are responsible for maintenance, updates, and any necessary hardware replacements, which can be costly and require on-site technical expertise. On-premise phone systems often necessitate a dedicated team. That way, any downtime you run into can be resolved as quickly as possible.
  • Cloud/Hosted PBX: Maintenance and updates are managed by the service provider, eliminating the need for businesses to handle these tasks. Opting for a cloud-based phone system can free up your team’s time to handle other, more vital operations for your business instead of managing a premise-based phone system.


  • On-Premise: Scaling (either up or down) can be more involved as it may require purchasing additional hardware or restructuring the existing setup. The physical space for more hardware then needs to be accounted for, as well as making sure there are enough resources to keep the premise-based phone system running.
  • Cloud/Hosted PBX: As opposed to an on-premise phone system, cloud-based technology offers easy scalability. Businesses can often add or remove lines with minimal effort and cost. These kinds of business phone systems are incredibly flexible, and a growing company will have a relatively painless experience onboarding new team members. It’s also easy to scale up or down the amount of services and features you get from your cloud/hosted PBX system, but we’ll explain that in more detail in a later section.

Redundancy and Reliability

  • On-Premise: Businesses are responsible for implementing their own redundancy measures and disaster recovery. If the on-site hardware fails, it could result in downtime. On the other hand, on-premise phone systems do not rely on far-away teams and equipment, so any challenges that arise can be easier to understand and control.
  • Cloud/Hosted PBX: Providers often have built-in redundancy across multiple data centers. This can offer increased uptime and reliability. The flipside is that factors outside of your business’ control can affect the company that hosts your communication services. If the internet is down, you may not be able to make calls. However, today’s providers often offer built-in backup through the use of mobile apps in the event your office internet connection is lost.

Flexibility and Features

  • On-Premise: Businesses that opt for premise-based phone systems can rely on a stable set of features, but adding new features might require additional hardware or software upgrades that they would have to manage themselves. On-premise phone systems typically don’t make many changes to the types of features offered over time. 
  • Cloud/Hosted PBX: Providers can often deploy new features and updates seamlessly. This model also easily supports remote workers and multiple locations. Cloud-based business phone systems are the clear winner when it comes to flexibility, but the features they offer are largely the same.


  • On-Premise: This sort of a solution often relies on traditional phone lines or a dedicated SIP trunk for VoIP capabilities. Technical explanations of these services are often too in too complex for most people, but it’s enough to understand that on-premise phone systems require an extra step to provide all of the various VoIP features modern businesses have come to rely on from their communications provider.
  • Cloud/Hosted PBX: The primary function of these types of systems utilizes internet connectivity, often making use of VoIP (Voice over IP) technology. They’re built to harness the power of the internet for your communication purposes. VoIP technology brings you all kinds of services under the unified communications umbrella, and cloud or hosted PBX systems are ideal ways to access those services. 

Total Cost of Ownership (TCO)

  • On-Premise: As we previously discussed, there is a high initial investment with on-premise phone systems because of all the physical infrastructure that a company must purchase. However, the TCO may be lower over time if the premise-based phone system is used for many years without major changes or upgrades.
  • Cloud/Hosted PBX: Monthly fees can add up over time, but the advantage is that businesses are often receiving the most up-to-date features and technology without added costs. Businesses without an on-premise phone system do not have to worry about maintaining their hardware or paying for upgrades to their equipment.  Costs are fixed and easy to budget.


  • On-Premise: The business is responsible for its own security measures, both in terms of physical hardware security and protection against cyber threats. This is another reason why having a team dedicated to properly maintaining the premise-based phone system is a necessity for many companies.
  • Cloud/Hosted PBX: While the service provider manages security, there’s a dependency on their protocols and practices. This can be a benefit if the provider is security-conscious, but might be a point of concern if they aren’t. Security concerns are another reason why it’s vitally important to only partner with the highest-quality providers that you trust implicitly. 

So, which should we choose?

All of those differences are informative, but you still might need more targeted guidance on whether an on-premise phone system is the right choice for your business communication needs. You’ll likely have some lingering questions about your specific circumstances, and you might still be curious about cloud or hosted PBX options. 

Here, we’ll look at the types of companies that are typically best fits for each of your options. 

On-Premise Phone Systems

  1. Large Enterprises and Corporations: These businesses often have the resources to handle the initial investment, ongoing maintenance, and any necessary updates. They also tend to have the physical space to house an on-premise phone system.
  2. Companies with Strict Compliance or Security Requirements: Businesses in sectors like finance, healthcare, or government might opt for premise-based phone systems to have direct control over their data and communications, ensuring they meet regulatory requirements.
  3. Organizations with Stable Infrastructure Needs: If a company doesn’t anticipate frequent changes or scaling needs, they might benefit from the stability of a premise-based phone system.
  4. Companies with In-House IT Teams: Businesses that have their own IT staff can manage and troubleshoot any issues that arise, making on-premise solutions more feasible.
  5. Organizations in Locations with Limited or Unreliable Internet: For areas where high-speed internet is unreliable, traditional on-premise phone systems that don’t rely heavily on internet-based connections might be more practical.

Cloud/Hosted PBX Phone Systems:

  1. Small to Medium-sized Enterprises (SMEs): These companies often benefit from the lower upfront costs and the scalability of cloud solutions. They typically don’t have the ability to purchase all of the required hardware for a premise-based phone system all at once.
  2. Start-ups and Rapidly Growing Companies: The flexibility to quickly add or remove lines and services without significant infrastructure changes is beneficial for these businesses. As opposed to established, steady businesses that have a good grasp on what they need, start-ups tend to have changing communications needs.
  3. Companies with Multiple Locations or Remote Workers: Cloud PBX makes it easier to integrate multiple locations or support remote work since it operates over the internet.
  4. Businesses Without a Dedicated IT Team: Companies that don’t have in-house IT expertise might benefit from a hosted solution where the service provider manages maintenance, updates, and troubleshooting.
  5. Organizations with Fluctuating Needs: Seasonal businesses or companies with variable demands (e.g., event organizers) might prefer the flexibility of a cloud-based system, which can be scaled up or down based on need.
  6. Companies Looking for the Latest Features: Cloud/hosted providers can update and roll out new features more rapidly than on-premise phone systems, benefiting businesses that want to stay on the cutting edge of communication technology.

It’s essential to note that while these are general guidelines, the specific needs and circumstances of a business will play a crucial role in determining the best solution. A thorough evaluation of the business’s current requirements, future growth plans, budget, and available resources is recommended before making a decision.

Tips for Making the Switch

If you’re currently using a traditional on-premise phone system and are contemplating switching over to a hosted PBX service instead, here is some of our best advice to help make that transition as smooth as possible.

  • Communication and Training: The top priority should be making sure everyone on your team understands how to use the system and all the features available to them.
  • Regulatory Compliance: Businesses in certain industries have heightened security and regulatory standards they need to comply with. If your company needs to stay on top of data privacy and security regulations (GDPR or HIPAA, for example), then you need to make sure the hosted PBX service adheres to those rules.
  • Internet Speed and Network Settings: Make sure everything is set up to be making phone calls over the internet. The provider you choose should be able to guide you through the process of proper setup and any adjustments you need to make to your network settings beforehand.
  • Necessary Features: There are so many useful communication tools you can make use of through a hosted PBX service. Go through all the features you currently use in your premise-based phone system, and check to see that the features you’re getting in your new system are in alignment. You might want more functionality than what you currently have, but you definitely don’t want less. Check and double check that you won’t be losing anything in the switch.

Choose the right phone system for your business.

Both systems have their own advantages and are suited for different business needs. Premise-based phone systems might be preferred by businesses that want more control over their infrastructure and have the capital for upfront investments. In contrast, cloud/hosted PBX systems are ideal for businesses looking for flexibility, scalability, and minimal on-site hardware responsibilities.

Your perfect partner for business communications is our team here at Mastor. We specialize in providing our clients with the highest quality voice over internet protocol communications solutions. For premise-based phone systems, our chosen partner is Epygi, a leading manufacturer of on-premise VoIP systems. These solutions are reliable and secure as well as easy to install. With their modular and compact design, the hardware can fit into fairly small spaces. You’ll have access to all of the advanced communication features your business needs to run smoothly as well as technical support if anything goes wrong. 

You can learn more about our Cloud/Hosted PBX systems here, and additional information about on-premise phone systems can be found here. If you have questions, please give us a call at 314-997-9007.  We would be happy to sit down with you and determine which type of solution is the best fit for your business and cater a solution to meet your specific needs..