Pros and cons of on-site phone system vs cloud based phone system

In 2015 and beyond, most small businesses choose between an on-premise and cloud based phone systems.  The big difference between the two is where the brain of the phones live.  Do you have physical equipment in your office or is the brain of the phone system in the cloud?  Often people use the term VOIP for phone systems with a brain in the cloud, which is technically inaccurate but almost always the case.

On Premise Systems

Pros:

• Long term costs are lower
• Voice quality is highest

Cons:

• Initial investment can be relatively high (prices would start at $7k for a small system for eight employees, add another $2k or so for each eight employees so 32 employees would be ~ $13k)
• Equipment may need maintenance (perhaps done by your IT guy, perhaps phone vendor)
• Hardware can fail or become obsolete and need to be replaced (typical life - 5 to 8 years)

Cloud Based Systems

Pros:

• Larger featureset than on-premise systems in most cases
• Allows for users outside of the office to have an office phone and participate fully as if they are in the office
• Upgrades of backend software are automatic - no hardware that becomes obsolete

Cons:

• Even in best case possible setups, can have some voice quality issues (not often but frequency can vary)

Let's use some numbers from recent systems I have put in place and use them as examples.  In this case, I'm assuming a small business with approximately 15 employees.

Client 1: NEC SV8100 with fifteen 24 button phones, PRI module, voicemail to email licenses - $9k, PRI at $400 per month from Windstream
Client 2: Telesphere (now Vonage Business) at $518 per month for 15 phones/licenses, $350 for dedicated ethernet over copper voice circuit at 5x5, add $500 for POE switch on day of implementation

Based on the numbers above, total cost of ownership for six years as follows (graph based on these numbers further below):

	Start	Year 1	Year 2	Year 3	Year 4	Year 5	Year 6
On Premise	$9,000	$13,800	$18,600	$23,400	$28,200	$33,000	$37,800
Cloud	$500	$10,916	$21,332	$31,748	$42,164	$52,580	$62,996