Hosted Phone Systems vs Cloud-Based Phone Systems: A Definitive Guide



The phone system your business uses may not seem like one of the most important decisions you can make, but it could be more important than you realize. When you look closely at what it could mean for your customer service experience as well as your bottom line, you begin to see just how crucial it is to make the right choice when considering upgrading your organization’s phone system.

A primary consideration, perhaps second only to cost, that many decision-makers face is whether to use on-site hosted phone systems or one that is based in the cloud. In the rapidly changing digital business landscape, knowing which option is going to give your business the best value addition is going to make the next several years much easier for your organization.


Hosted phone systems are one of the most well-known options, but cloud-based systems are proving to be incredibly flexible and capable, even resilient. We’re going to do a deep dive into hosted phone systems and cloud-based phone systems. We’ll look at the commonalities, the key differences, and which might be best for the current stage of your business development. We’ll also take a look at some of the best providers, as well as how they price their services.

In this short guide, we’ll explore:

  • The Difference Between a Hosted Phone System and a Cloud-based Phone System.
  • What A Hosted Phone System Is.
  • How Hosted Phone Systems Work.
  • Benefits Of Hosted Systems.
  • Drawbacks Of Hosted Systems.
  • What A Cloud-Based Phone System Is.
  • How A Cloud-Based Phone System Works.
  • Benefits Of Cloud-Based Systems.
  • How to Tell When You Need a Hosted Phone System vs a Cloud-Based One.
  • The Different Types of Hosted Phone Systems and Cloud-Based Systems.
  • How Cloud-Based Phone Systems Are Priced.
  • The Best Cloud-Based Phone Systems On The Market.

There’s a lot to get through, so let’s not waste any time. Let’s dive in and get your phones online!


What Is the Difference Between a Hosted Phone System and a Cloud-based Phone System?


Conventional hosted phone systems are installed on-site, linking all of the internal company extensions and phone connections to the external phone networks of the world. Some of the more advanced options also integrate VoIP, or Voice over Internet Protocol.


Cloud-based systems, however, use existing network infrastructure to link the company’s phone extensions. Hosted phone systems will use more conventional desk phones, while cloud-based systems will often use a softphone that integrates with the computer.

Here’s more about each system, and how they differ.


What Is A Hosted Phone System?

A hosted phone system, also known as cloud-PBX, runs on internet connectivity, instead of conventional phone lines. They are hosted by third-party companies that offer the systems on a subscription service basis. They provide the business with a phone number, and are largely maintained by the VoIP hosting company.

How Does A Hosted Phone System Work?

The hosted phone system is connected to a PBX, or public branch exchange, where the service provider or host manages the data connections for their servers. When a customer calls the business, the call is routed to the cloud-PBX, which then allows the conversion of the call into data, which is then transmitted over the network, where the PBX routes the call accordingly.

Benefits Of Hosted Systems

Hosted phone systems have many benefits. They are flexible solutions for many companies of different growth stages and team sizes, and they can easily accommodate remote workers and others who need to work outside of a physical office. Hosted systems are also largely scalable, and team members can communicate internally even when in different physical buildings.

Hosted systems are also highly cost-effective, with monthly fees that often come to only a small fraction of other solutions. They don’t require any additional equipment or installations and are compatible with existing devices like laptops and other mobile digital devices. The network integration is seamless and often rapidly deployable.

Drawbacks Of Hosted Systems

While there are some significant benefits to using hosted systems, there are also some drawbacks that you should be aware of. They are incredibly convenient solutions, but there are some important points to remember when considering using a hosted system.

Hosted systems are a third-party provider, so there may be some privacy concerns for your business. This also means that investigating the security and privacy policy of the hosted system provider is also vital to understand how your data will be handled. 


Additionally, since the systems are internet-dependent, having the network or wifi go down at your location can mean that communication in and out stops completely. This means no messaging, emails, phone calls, voicemail, and so on. In some situations, this can create a customer satisfaction nightmare, as well as intramural communication challenges.

What Is A Cloud-based Phone System?

Cloud-based phone systems, also known as virtual PBX, is a phone system designed for commercial use that is managed and hosted entirely off-site by a third-party provider. Cloud-based systems use the provider’s servers and do not require any hardware installation to manage and route phone calls. Users can access the business telephone system through mobile devices and computers, making the systems incredibly versatile.

How Does A Cloud-based Phone System Work?

Cloud-based phone systems work by converting conventional phone calls into data that is then sent over the internet, and routed virtually. Businesses can use cloud-based phone systems to send and receive phone calls and other communication on nearly any authorized device connected to the network. When a customer calls, the call is routed directly to the provider’s servers, which then route the call data to the business’s internal phone system, where it is answered on any suitable device.

Benefits Of Cloud-based Systems

There are countless benefits to cloud-based systems, but we’re only going to get into a few of them here. Cloud-based systems provide enhanced functionality, increased flexibility, and endless scalability to businesses. They can incorporate existing phone features like voicemail, call forwarding, and even virtual receptionists so that your business can continuously improve its customer experience and satisfaction.


When Do You Need a Hosted Phone System, and When Do You Need a Cloud-based Phone System?


Hosted phone systems and cloud-based phone systems are relatively similar, though there are still some notable differences in who may benefit the most from each system. Hosted phone systems and cloud-based systems will have some overlap in applicable users, so it’s important to consider not only current but potential future needs as well, before making any decisions.

Hosted Phone Systems

Hosted phone systems are great for businesses of all sizes, and their scalability makes them a good option for companies that are still growing, or expect to grow rapidly. They are highly cost-effective and are suited to managing large teams that are spread across multiple locations. Companies with massive monthly phone bills can often drastically reduce their communication expenses by migrating to a hosted system.


Cloud-based Systems

Cloud-based systems, like Ring4, are able to bring your business a higher degree of flexibility and adaptability, with lower costs and easier scalability. They are ideal for small and medium-sized businesses that have multiple remote teams or departments that need more efficient and effective internal communication options. Cloud-based systems offer many of the same features that are offered in other services, but in a more convenient and cost-effective package. The lack of any physical equipment burden means that businesses with low overhead can also find significant value in cloud-based systems.


How Are Cloud-based Phone Systems Priced?


Pricing for cloud-based phone systems is one of the more important considerations that need to be made prior to choosing a new provider or upgrading the system at all. A cloud-based phone system that is priced well can not only help draw in more customers, but it can help you retain those customers with less effort.  There are several different pricing models that companies commonly use, as well as some factors that will affect the pricing in those models. We broke this down in our post How is the Pricing Done for Cloud Based Phone Systems?, but below we’re sharing some of the basics.


Factors That Influence Pricing


The features you want to include in your cloud-based phone system will have an effect on the pricing that you see. Bare-bones providers or plans will often be much cheaper, while those that offer more feature-rich platforms can ask for higher prices. Some providers will even allow you to add and subtract individual features from your plan for a nominal fee.

Number Of Users

The number of users that you need to have on the system is one of the more significant factors that will affect your pricing. Just like with many other services, cloud-based and otherwise, more users means more licenses and more money. This is because more users mean more server resources devoted to that business and more maintenance and upkeep of the equipment needed to provide the service. It’s important to remember, however, that pricing isn’t always locked to the number of users, and many vendors offer bulk usage discounts. This means it may be more economical for you to pay for more users than you have because you’ll get a better price on a per-user basis, which makes adding more employees fast and cheap.

App Integrations

Many of the leading cloud-based phone systems will offer integrations with popular external apps or websites. Commonly integrated services and apps include Slack, Zendesk, and Office 365. While these app integrations aren’t essential for basic functionality, they can lead to much more effective and efficient use of the system, leading to smoother day-to-day operations overall.

Plan Length

The length of the plan that the business chooses to operate with the cloud-based provider can also have a considerable effect on the overall price of the plan. Just like subscriptions for many other services, getting a shorter contract or subscription means more frequent renewals and a less predictable revenue stream for the company, so getting longer plans generally means a lower monthly or yearly cost. Signing on for a 60 or even 72-month plan will often be far cheaper per month than simply getting a 12-month plan.

Extension Locations

One of the influential factors for plan pricing that people often don’t think about is the location of the extensions in the company. Businesses with larger numbers of surplus extensions in conference rooms, break rooms, or lobbies can often negotiate a much lower price than if those extensions all belonged to individual employees. This is because the cost of maintaining extensions that are used far less often is much lower than those used more frequently.

Common Pricing Models

In most cases, you will see three common pricing models that are used by the majority of the leading cloud-based phone system providers. There are those who price in flat rates, per-use, per-user, and with completely custom models. The pricing model that will be the best for your company will depend on many of the pricing factors we discussed previously, as well as the specifics of the company and its current stages of development and growth.

Flat Rate

Flat rate pricing for cloud-based phone systems has businesses paying a fixed monthly cost for unlimited calls and use, with a predetermined feature set. This option is often one of the better options for companies that have a consistent or predictable phone call volume from month to month, as well as a predictable budget. Small or mid-sized businesses that only employ a few people who each handle a predictable number of communications each month are generally good candidates for flat-rate pricing.


Cloud-based phone providers that use the pay-per-use model allow businesses to pay only for the phone calls that are made or received. This makes this pricing model an ideal option for businesses that either don’t make or receive many calls or have an inconsistent number of phone calls made and received each month. This is also a great model to capitalize on for businesses that have a busy season and a slow season, or multiple. Home businesses and small retail environments are perfect for a pay-per-use pricing structure.


Another popular pricing model for many cloud-based phone system providers is pricing on a per-user basis, allowing businesses to pay for each user regardless of the phone traffic that they may handle. This type of pricing model is great for businesses that have a large number of users, regardless of the coll volume or predictability of the call levels.

Custom Plans

Many providers of cloud-based phone system services will offer a completely custom pricing model for businesses that need it. This is often the best option for businesses that have unique requirements or irregular phone handling needs.


What Are the Best Cloud-based Phone Systems in the Market?


If you are considering upgrading or changing your phone provider, and are thinking about using a cloud-based provider, there are several that are leading the industry. In a recent post we explore the six best cloud-based phone system providers. Below are the providers we highlighted:


Ring4 is a leading cloud-based phone system that makes it simple to set up business calls from anywhere on the planet. They don’t need any additional hardware or software to get you up and running, just a few minutes of your time and a few dollars per user. The per-user pricing starts at just $8/user/month. With that price you get unlimited nationwide calls and messages, as well as top features like call recording, voicemail, transcripts, and video conferencing for one low cost.



RingCentral is like many other cloud-based phone system providers and provides an unlimited number of calls and messages on a per-user pricing model. They offer many other common features like video conferencing and call recording, though some of their premium features are only available under higher pricing plans. A unique feature is an ability to send faxes.



Nextiva touts itself as one of the few all-in-one cloud-based business phone solutions. They include important tools and features like chat and collaboration tools, as well as video conferencing and fax ability. They have a handy voicemail-to-email feature that keeps you updated even when you can’t answer. A mobile app and more than 40 features make Nextiva a good option.



8x8 also gives users unlimited calls and messages nationwide, as well as features like auto-attendant and visual voicemail which provides instant transcripts of voicemails from missed calls. Video conferences can accommodate up to 100 attendees, and simple 1:1 messaging is included to help boost collaboration.



Vonage is an older cloud-based provider that gives users unlimited calls and messages within the US. They also include unlimited team messaging and handy features like hold music and do-not-disturb modes. Their app is simple to use, and their service doesn’t require any additional hardware.



Dialpad is a lesser-known option that offers many of the same features that larger providers do. They offer unlimited calls and messages, video conferencing, voicemail, and call transcripts. They also integrate easily with many other apps like Google Workspace and Office 365. More costly plans also include Zendesk, CRM, and other apps.


How to Choose a Cloud-based Phone System?


If you’ve made the decision to upgrade your phone system to a cloud-based system, there are a few things you should think about before making the move. In our post, 8 Features to Look for in a Cloud Based Phone System, we shared several features to look for when considering your potential cloud-based provider. Take a look at our list below, and see if the provider you are considering offers some of these common features.


Call Anywhere

Potentially one of the most crucial features for remote workers or those who travel a lot is the ability to call anywhere from anywhere. This means you can make business calls using your business number, even when staying at a hotel or while working in a new environment. It also means your users are always reachable, which makes collaboration much easier since employees are always connected even when not physically in the office.


Instant Messaging

Instant messaging is a vital feature for many businesses that have team members or departments that are spread across geographic areas, or even for larger teams spread across a building, to communicate instantly and efficiently. Messages can be sent and received in real time, which can be even more rapid and seamless than phone calls or emails. Instant messaging is also an indispensable tool for teams that need to constantly collaborate on projects or tasks since it eliminates much of the lag involved in communication.


Artificial Intelligence

AI capabilities are growing every day, and when leveraged with a cloud-based phone system the capabilities of AI mean that your team can benefit from expertly-routed phone traffic. AI can help route calls based on the caller’s needs or goals and can ensure the call is sent to someone with the best chance of being able to help or satisfy the customer. It can even be used to provide personalized customer service solutions and product help.


Video Conferencing

Video conferencing is a feature crucial to any business that has teams spread across multiple offices, but that still needs to have sit-down, face-to-face meetings periodically. Video conferencing is also used for quick meetings and updates about projects in progress, as well as being used as an instant way to communicate that is more personal than a phone call.


Call Forwarding

One of the oldest, and most useful features that you should expect to see in your cloud-based phone system feature set is call forwarding. The system should allow you to reroute incoming calls, whether all calls or specific calls, to another location or phone where you will be located. This is commonly used for those with desk phones in their office to forward office calls after-hours to their cell phone or alternate voicemail, where the calls can be screened or answered.


Auto Attendant

An auto-attendant is a specialized, automated answering system that greets your callers and presents them with options for routing their calls and reaching the person or department they need to reach. This is commonly experienced when calling larger retailers, and the caller will need to detail what department or extension they are looking for so their call can be routed appropriately. While many people dislike auto-attendants, when done simply and well, they can be helpful and improve the customer experience.



Being able to integrate your cloud-based phone system with other applications is an essential feature. This lets you integrate your phone system with CRM software, project management or Gantt software, email, and messaging applications. This helps your business organize and streamline the tasks and functions that are commonly associated with phone calls. For example, when a customer is calling, the CRM software can automatically search their phone number and bring up previous records of communications, so that their needs can be addressed quickly and efficiently.


Voicemail Transcription

Voicemail transcription is a feature that many people feel they don’t need until they have it for a while. This feature automatically transcribes voicemail content into a text or email message, so that even when you can’t answer, you can stay in the loop.

Related: Also read our post 5 Features to Look for in a Hosted Phone System


Where to Go From Here


Now that you’ve gone through our guide comparing hosted phone systems and cloud-based ones, we hope we’ve given you significant food for thought as to which one will work best for you. Next, we encourage you to read the reviews of the companies you are considering, and try free trials where possible. Not all phone systems are the same as the old saying goes, and it’s best to put some serious thought into your decision instead of blindly picking one on price or recognition alone. It’s reputation and dependability that matter most.

Interested in learning more about Ring4’s Cloud-based phone system? We’d love to have your company switch over to us. Click here to learn about our pricing. Or, if you’re ready to jump in, click here to start your free trial and get your business phone number online in minutes.


Hosted Phone Systems vs Cloud-Based Phone Systems

In this guide, we look at the key differences between hosted phone systems and cloud-based ones, and which might be best for your business’s development.