Public Branch Exchange, or PBX phone systems, give businesses professional calling features, like call transfers, auto attendant, call scheduling and more. This guide covers all the basics about PBX phone systems, including the following:
- What is a PBX phone system
- Differences between traditional, IP, hosted and virtual PBXs, and when to use each
- Which PBX phone system we recommend for small businesses
What is a PBX Phone System?
A PBX is an internal phone system for a business or organization. The definition has evolved since internet-based telephony (VoIP). But traditionally-speaking, we can think of a PBX as a box that receives calls and distributes them to employees using sophisticated rules.
Using a PBX phone system gives businesses 2 main advantages:
- Transfer calls. Employees can transfer calls internally. You can also setup an auto-attendant or dial-by-name directory that allows callers to direct themselves to the right extension.
- “Share” phone lines. An office of, say, 20 employees can share just 10 phone lines. This is much cheaper than giving each employee their own landline, although you’re limited to just 10 concurrent calls.
It’s important to note that newer VoIP-based PBX systems do not rely on landlines, so you can support an unlimited number of concurrent phone calls (or rather, as much as your bandwidth will allow). We’ll get more into these “hosted” PBX systems next.
The Different Types of PBX Phone Systems
|Traditional PBX||IP PBX||Hosted PBX||Virtual PBX|
|Good for...||50 + employees||50 + employees||5 to 50 employees||1 to 4 employees|
|Approx. One-time Cost||$1,000 per seat (for hardware, installation and phone handsets)||$1,000 per seat (for hardware, installation and phone handsets)||$150 per seat (for phone handsets, no hardware required)||None|
|Approx. Recurring Cost (for phone service)||$20/month per seat (landline)||$10/month per seat (PRI)|
Or $5/month per seat (VoIP)
|$45/month per seat (Nextiva)||$35/month (Grasshopper)
+ cost of phone service
1. Traditional PBX
The original type of PBX system is landline-based and relies on a physical PBX box. Just as the image at the top of this article describes, landline phone lines enter your office into a PBX box. Then, the phone lines are distributed to each desk in your office.
Compared to newer systems, traditional PBXs can be very expensive to set up. You not only need to purchase a physical PBX box ($1000 – $5000+), but you need to install analog phone lines within and outside your office.
2. IP PBX
An IP PBX is very similar to a traditional PBX phone system. The only difference is that it uses digital phone signals internally, rather than analog-based landlines.
An IP PBX may still rely on an analog phone signal once the call LEAVES your office. But WITHIN your office, it uses VoIP. The main advantage is an easier set up: You can use ethernet cords to connect your phones, instead of traditional phone cables. If you rearrange your office, you don’t have to do any rewiring.
An IP PBX can also accommodate businesses with multiple locations and/or remote workers. Because call routing/transfers are being handled via the internet, you can transfer to somebody in another office (provided they’re linked to the same network). An employee who works from home can even plug in an IP-phone and receive calls the same way they would in the office.
An IP PBX system is still expensive because of the high cost of a PBX box ($1000 – $5000+) and installation. However, it can be a good option for larger businesses, since you generally don’t have to pay as much in monthly service fees (compared to a Hosted PBX, which we’ll describe next.)
3. Hosted PBX
This is the newest kind of PBX phone system. A hosted PBX also uses digital VoIP phone signals. However, unlike an IP PBX, it does not require a physical PBX box. Instead, you can control PBX features (like call routing, transfers, auto attendant, voicemail, etc.) from your internet browser or smartphone.
A hosted PBX offers the same portability as an IP PBX. Remote workers can plug in a phone as though they were in the office. When you’re on the go, you can even make calls from your cell phone using your business number.
The main advantage to hosted PBX is that there’s no hardware, and thus little upfront cost to set one up. Instead, users pay a monthly subscription fee of about $30 to $50 per extension. This makes a hosted PBX the most economical option for small businesses. Setup is also very simple, since all you need to do is connect phones via ethernet and adjust call routing settings online.
For a comparison of 3 popular hosted PBXs (Nextiva, RingCentral and Phone.com) check out our guide Best Small Business VoIP Service: Which Provider is Right for Your Business?
4. Virtual PBX
A virtual PBX is a “light” version of a hosted PBX. It works the same way as a hosted PBX, but gives you fewer features.
For example, the virtual PBX system Grasshopper can receive calls and route them to different employees based on predefined rules. What they cannot do, however, is actually give you phone service: Grasshopper can only forward calls to an existing cell, landline or VoIP phone numbers.
A virtual PBX can be a good option if you need a professional-sounding phone system overnight. Setup time is virtually immediate. The downside is a virtual PBX can expensive in the long-run, since you’ll need to continue paying your cell phone/landline bills on top of your virtual PBX subscription.
Which PBX Do We Recommend?
For most small businesses, we recommend using hosted PBX phone systems like Nextiva. This is because it offers all the key business phone features without the steep upfront costs of a traditional or IP PBX – which begins around $3000 for just a few employees.
A hosted PBX simply requires internet service and phone handsets (though you can also use cell phones or desktop softphones, if you don’t want to purchase physical phones.) All of the business phone features like your auto attendant, phone tree, voicemail boxes, etc. are managed online. This makes it highly scalable, as you can add/remove extensions at any time.
Dashboard of Hosted PBX Nextiva. You can manage all settings from a smartphone.
As your office grows beyond 40 or 50 employees, however, an IP PBX becomes more economical. This is for 2 reasons:
- Setup costs become more reasonable with a larger office. For example, an office with 50 employees may pay just $600 per seat, compared to $1000 or higher for an office of 20.
- Monthly service fees can be lower than a hosted PBX. If you use PRI or VoIP phone service (as opposed to landlines), the cost tends to be much lower than a hosted PBX.
What About A Traditional PBX?
A traditional PBX system is generally something you won’t setup from scratch. If your office already has one installed, it may be wiser to continue using it. Because the cost of landlines, however, and the lack of features (no portability, remote workers, voicemail-to-email, etc.), most businesses will opt for an IP PBX or Hosted PBX instead.
The Bottom Line
Traditionally, a PBX was a bulky and expensive system that only enterprise businesses could afford. These days, however, hosted and virtual PBX providers make it accessible to pretty much anyone.
What’s more is you can get started very quickly. By signing up online and forwarding calls to your smartphone or Google Voice number, there’s virtually zero setup time.
To check out some popular hosted PBX systems, read our buyer’s guide: Small Business VoIP Service: Which Provider Is Right For Your Business?
Thanks to Michael Bremmer from Telecomquotes.com for contributing valuable information to this article.