VoIP: How Does it Work and Should I Switch?

VOIP Phone System
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VoIP systems are telephone systems that rely on wi-fi instead of traditional phone lines. This makes them far more reliable than conventional phone systems, while also coming with a load of new features and possibilities.

Many offices are taking up VoIP systems instead of standard phone lines, as they allow for much more versatility and stability. If you're already intrigued, it might be worth filling out our quick quote comparison tool to see just how much a VoIP system could cost your business. Don't worry, there's no commitment required – it's just a simple way of seeing what you may end up spending if you choose to adopt VoIP.

What is VoIP?

VoIP stands for voice over internet protocol, but it’s much easier to understand than its jargony name might suggest.

Put simply, a VoIP system enables you to make and take phone calls over the internet, instead of over traditional phone lines. VoIP systems are reliant on wifi, not the landline network – and while that might sound worrying, it actually makes for far more streamlined and affordable business communications.

VoIP phone systems tend to come loaded with a variety of functionalities, from call features that give your customers a better experience when they phone you (think auto attendants, voicemail, and customisable on-hold options) to unified communications tools that make working with your colleagues easier (such as video conferencing, presence updates, and instant messaging).

VoIP systems are also far more flexible, as you can use VoIP-compatible desk phones (also known as IP phones) to make VoIP calls, but you can also just use your VoIP system app to make calls using your smartphone or computer.

We’ll continue to explore the different benefits of VoIP in more detail later on in this article, but for now, let’s just say that VoIP’s enduring popularity is entirely justified.

How Popular Are VoIP Phones in 2021?

It’s incredible to think that free international phone calls were a pipe dream just 30 years ago.

After the dot-com bubble burst, web data prices fell, and data-intensive web services like video and VoIP began to emerge. However, early issues with call quality and stability prevented VoIP from being taken seriously as a business solution.

Cut to 2021, and many of VoIP’s early issues are a distant memory. VoIP is gaining popularity for business – undeniably helped by the unexpected, COVID-fueled boom in remote working, and the need for more efficient, internet-powered technologies that has brought about – and landline phone companies are losing market share to mobile and VoIP competitors:

But, while VoIP is very much in vogue, you shouldn’t throw out your old business phone handsets. The best business VoIP phone systems can integrate their services with older handsets. Their ‘softphone’ solutions also turn laptops, tablets and mobiles into VoIP-enabled powerhouses. The best solution for your business may be one that uses hardware you already have.

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How Does a VoIP Phone System Work?

When you make a VoIP phone call, a process called packet switching takes place. Here’s how it goes:

Step 1: Your voice is converted into digital formStep 2: Your digital packets are sent across the internetStep 3: The digital information turns back into audio
When you speak into your phone, your voice enters the receiver as an analog signal. Your VoIP software converts this analog signal into digital pieces of information (known as packets).These packets are sent over the internet to your recipient’s phone. If you're calling someone local (for example, a coworker in the same building), the packets will travel across your Local Area Network (LAN).The digital packets are then converted back into an analog signal, which takes the form of your lovely voice as you say hello. And that’s the magic of VoIP software!

If you're calling someone who still uses traditional phone lines instead of VoIP, don't worry – your calls will still work! Instead of travelling over the internet the whole way, your packets will jump onto the PSTN (public switched telephone network) in order to reach your ‘callee'.

Did You Know?

There's a jargon-buster at the bottom of this page! If you've encountered any terminology you're not sure about (we're looking at you, “LAN”) scroll down to the end of this page to take a look at our glossary of technical VoIP terminology.

Why Switch to VoIP?

Normally, we’d advise you to thoroughly compare the different options available, and choose the right one for you. But VoIP is such an all-round excellent solution that it’s likely to be a good choice for any business. Plus there’s the fact that the majority of phone system suppliers now provide a VoIP system of some kind as their flagship product (which really speaks for itself).

But why should your business make the switch to a VoIP phone system? There are plenty of reasons…

✓ Affordability

VoIP systems are unfailingly cheaper than traditional phone systems. First off, you don’t need to pay for a connection to any physical phone lines, or the maintenance costs that can be incurred there. You just need an internet connection, and it’s pretty safe to assume you’ll be paying for that already.

With a VoIP system, you also won’t need to pay for your phone calls on a minute-by-minute basis, again because they’re taking place over the internet. You’ll find that the majority of VoIP system providers will give you a generous allowance of calls within Canada and the US, if not unlimited calls. Some will even enable you to make international calls for free.

Generally, for a VoIP phone system, you’ll pay a monthly subscription fee per system user. These fees can be as low as less than $20, but we’ll explore that in more detail later on in this article.

Did You Know?

If you’re on a super strict budget, you don’t necessarily even have to buy desk phones, because VoIP systems can be accessed from smartphones, computers, and tablets, too.

✓ Reliable call quality

The worry with VoIP has always been that it’s dependent on your internet connection. There’s no way that a voice coming through the web can be as clear as a voice that’s traversing a sturdy old phone line, right?

When VoIP first rose to prominence, that was the case. But now, the call quality boasted by VoIP outpaces that of the traditional phone network. VoIP suppliers have invested in HD audio technology, noise-blocking AI, and other technologies to keep your calls crystal clear. At the moment, these haven’t been matched by other kinds of phone systems.

✓ Flexibility

Back in March 2020, COVID-19 pushed almost 40% of Canadian workers to start working from home. But even before then, there were plenty of reasons to be flexible with our working locations – childcare being perhaps the biggest of these. If your business is continuing with a more flexible approach, VoIP can help to keep your team communicating.

This is because, as we’ve mentioned, VoIP doesn’t require desk phones, and you don’t need to be in one specific building to use it. A VoIP system can be accessed from any device, so long as you’re somewhere with an internet connection. Many VoIP systems come in the form of softphone apps that can be downloaded onto smartphones, tablets, and computers for easy access, allowing your team to continue to make and take calls using their business phone number, and use the features that have come with your system.

✓ Unified communications features

Speaking of teams and features, it’s worth pointing out that modern business VoIP systems tend to come with unified communications (UC) features, including video meetings, audio conferencing, instant messaging, and presence reporting. This can help your staff to stay in touch and collaborate more easily, and it beats paying for separate software systems to cover these needs. A clear example is Google Voice, which, as you can imagine, integrates with other Google apps.

✓ Useful call features

VoIP phone systems can come with a variety of call features to present your team as professionals, and make contacting your business a seamless experience. The call features available to you will depend on which VoIP system you choose, but many do come with:

  • Auto attendants that direct your caller to the right person or team extension
  • Customisable on-hold music and messages
  • Find me follow me, which rings through a set list of numbers and devices until the call is answered

Many VoIP systems also come with add-on features for call centers, including whisper (the ability to listen in on a conversation and discreetly advise your agent), barge (the ability to take over a call if necessary), and real-time visibility over call queues.

Did You Know?

VoIP system suppliers will often tell you the exact number of different features they can offer. Most provide 40 to 60, but we’ve seen some – like GoToConnect – boast of as many as 100.

✓ Handy integrations

Many VoIP systems can be integrated with the other software that your business uses, such as CRM (customer relationship management) software – making it easier to track and report on your customer communications – and email systems, so that your VoIP system can send voicemail transcripts directly to your inbox.

✓ Deep data analytics

VoIP systems often come with reporting capabilities that make it easy to track useful information. You can log calls, analyse your caller waiting times, and record calls if needed.

Some VoIP providers are developing ever more intelligent ways of reporting on phone calls. Dialpad’s system Dialpad Talk, for example, uses “voice intelligence” – cutely nicknamed Vi – to automatically recognise action items that come up in phone conversations and turn them into to-do lists for you. It can also identify negative and positive sentiments in conversations, reporting on problems and praise for you to follow up on.

VoIP Phone Systems for Small Businesses

We recommend hosted VoIP systems to small businesses over any other kind of phone system. This is because…

They provide sophisticated features at affordable prices

Most hosted VoIP systems come with a variety of call features (certainly many that aren't possible with traditional landline systems), as well as modern unified communications (UC) features to help you communicate and collaborate with your team efficiently. Such features can include video conferencing, team messaging, file sharing, and more.

Best of all, hosted VoIP systems tend to come at a very reasonable price. VoIP system costs start at around $15 per user, per month, for basic packages, while more advanced packages tend to sit somewhere between $20 and $40 per user, per month.

They're flexible

A hosted VoIP system can be accessed on any device, from anywhere with an internet connection. This means remote working can be just as effective and professional as working in the office, as your team members will be able to make business calls and access the system's features using their own smartphones or personal computers.

They're easy to set up

Because hosted VoIP systems ‘live' in the cloud, they don't call for any complicated server hardware installation. Essentially, they're software-based: all you need to do is download the software onto your team's computers and/or smartphones, then configure your settings (such as your call routing) so the system works how you want it to.

If you've chosen desk phones for your office, you'll also need to set these up with your system. Often, this is just a case of plugging them in and following some setup instructions.

In fact, setting up a hosted VoIP system is so simple that most hosted VoIP providers don't see the need to provide an installation service. Instead, they'll offer online tutorials, or a helping hand over the phone, to guide you in doing it yourself.

For more information, check out our reviews of the best VoIP phone systems for small businesses.

What Equipment Do I Need to Use a VoIP System?

VoIP may fall under the category of SaaS (software as a service), but no software is complete without a physical interface and hardware on which to run.

Depending on your needs and priorities, there are three kinds of equipment you can use with VoIP: IP phones, pre-existing smart devices and/or computers, or ATAs.

1. IP Phones

Use if: You want feature-rich VoIP capabilities, and prefer desk phones to cell phones

IP phones are specifically designed for VoIP services. They come with onboard VoIP software and a cable that plugs directly into your network router. IP phones also include modern interfaces that grant quick access to a host of handy features, like voice-to-email messaging and call forwarding.

IP phones offer a far greater range of VoIP functions than ATA-equipped analog phones. Naturally, these features come at a higher cost than ATAs.

If you’re buying your first VoIP phone system, native IP phones would be a sensible hardware choice. If you are upgrading an existing phone system, you may be able to achieve VoIP functionality without replacing all of your old handsets.

Poly VX 600

The Poly (formerly Polycom) VX600 boasts a number of impressive features, making its $195 price tag a worthwhile investment. The Poly VX 600 comes with a 4.3” gesture-controlled touch screen interface, full HD audio and even lets you manage your Microsoft Exchange calendar on the fly.

Price: $195

Read our full Poly review

2. Smart Devices and Computers

Use if: Your team are often on the go or working remotely, and/or you don't have the budget to buy new IP phones

Hosted VoIP systems often come with softphone apps that you can use on any internet-enabled device, including smartphones, tablets, and laptops. This means you can access and use your VoIP system from these devices – no dedicated phones needed.

3. Analog Telephone Adapters (ATAs)

Use if: You already have analog phones, and don't want to invest in new IP phones – and you don't mind more limited functionality

An analog telephone adapter (ATA) is a device that connects an analog desktop phone to your computer, enabling you to use it to make and take phone calls over the internet. ATAs are an inexpensive way to add VoIP capability to your legacy PBX phone systems, but you will be limited to making and taking VoIP phones only on the phone you've connected to your ATA.

Let's take a closer look at the ATA we recommend buying:

Cisco SPA112

With the Cisco SPA112, you get all the typical features that come with a VoIP phone system including; Caller ID, call waiting, voicemail, and more. The Cisco SPA11 system is one of the best on the market for voice quality, making it a great choice for teams who demand crystal-clear sound during conference calls.

Price: $35

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What are the VoIP Hosting Options?

We’ve talked about VoIP needing little more than the internet to work. But it’s a little more complex than that: your VoIP system will need its own IP network, with private data centers, so that your calls remain reliable and secure.

When it comes to hosting this IP network, you’ve got three options:

  1. Hosted/cloud-based VoIP
  2. On-premise VoIP
  3. Hybrid VoIP

Let’s take a look at these options in more detail.

1. Hosted/cloud-based VoIP

Suitable for businesses of all sizes, this is an affordable and easy option that’ll likely be the better choice for most.

With hosted VoIP, your VoIP system provider will host the necessary IP network for you on its own IP-PBX servers, so you don’t have to worry about it. You’ll be able to access the system via the cloud. Let’s take a look at the pros and cons of hosted VoIP:


  • There are no extra costs involved – the cost of hosting is included in your monthly subscription
  • Being based on the cloud means your team can access the system from anywhere
  • It’s scalable: your provider should let you add new users easily


  • You won’t have control over the service – your system provider will choose the features available to you

2. On-premise VoIP

Suitable for larger businesses with bigger budgets, this option gives you full control of your system but requires more investment and time

With on-premise VoIP, you’ll host the necessary IP network yourself on your own servers. The whole system will need to be set up on your premises, with the right PBX equipment and software licenses. So, what are the key pros and cons of this approach?


  • You’ll have full control over your system, and will be able to customize it to suit your team’s needs
  • Your ongoing costs will likely be lower as you won’t be paying for someone else to host for you


  • The upfront cost is much higher – you’ll need to pay for your own equipment and setup
  • You’ll need access to IT/telecoms experts who can maintain the system for you
  • It’s not as flexible – your team may not be able to access the system from outside your premises

3. Hybrid VoIP

Hybrid VoIP isn’t a hosting solution in its purest sense, but it’s an option that’s worth being aware of as it combines many of the pros of on-premise and hosted VoIP. A typical example of a hybrid solution would be connecting a non-VoIP-enabled PBX phone system to a VoIP provider’s network via gateway servers.

One of the biggest advantages of using a hybrid PBX is that if you suffer a VoIP service outage, you can still make calls using the standard PSTN.

How Much Does VoIP Cost?

VoIP phone systems can be as feature-rich as they come, but they’re still usually more affordable than any other kind of phone system. Let’s take a look at the costs you’ll face for both a hosted VoIP system and an on-premise VoIP system:

The cost of hosted VoIP

For a hosted VoIP system, the main costs you’ll need to consider are:

Typical cost
Hosted VoIP system subscription$15 – $60 per user, per month
IP phones$50 – $500 each

The amount you pay for both your system and your IP phones will usually depend on how sophisticated and feature-rich they are.

You might also need to pay additional monthly costs for any add-ons that you need, such as call centre features, or increased video conferencing capacity. The kinds of add-ons available, and how much they cost, will depend on your provider.

The cost of on-premise VoIP

For an on-premise VoIP system, the main costs you’ll need to consider are:

Typical cost for a team of 20
PBX hardware$6,000 – $7,000 upfront
PBX software licensesAround $4,000 upfront
Setup and installationAround $1,000 upfront
IP phones$50 – $500 each

You’ll also need to pay for the ongoing maintenance and upkeep of your system. This will involve either hiring employees with the right telecoms knowhow, or outsourcing the task every time you need an upgrade or update.

Did You Know?

If you’re keen to host your own VoIP system but don’t want to pay for expensive PBX hardware and software licenses, there is a way forward. You can use an open-source PBX system, such as Asterix. This software can be downloaded for free, and turns your existing computer into a desiccated, on-premise VoIP system host.

We’d advise doing something like this over building your own servers up from scratch. However, you’ll still need technical knowhow to set up and configure your system, and you’ll still need to pay to keep it maintained and updated.

Next Steps

At this point, the old phone network is like a giant comfort blanket. No matter how long you’ve used it for, the truth is that you probably outgrew it years ago. Every business deserves better.

We’re confident in declaring VoIP the clear winner in the battle for your talk time. Hosted VoIP has better call quality than ever, and the potential cost savings of switching are huge (Dell saved $39.5 million in two years by using VoIP for telecommuting). And, for today’s deskless worker, the mobility that VoIP offers is no longer a luxury; it’s a necessity.

If you've decided to upgrade to a VoIP system, the next step is to find and compare the best system providers for your specific needs. Fortunately, our free quote-finding service can help with this. Simply answer a few questions about your business and its communication needs, and we'll match you with VoIP system providers that are right for you. They'll then be in touch directly with personalized, no-obligation quotes for you to compare, as well as answers to your questions. It's the quickest, easiest way to zero in on the best options for your team.

VoIP Jargon Decoded

The jargon that surrounds VoIP phone systems can be overwhelming. Here are some key definitions to help clarify your research:

BandwidthBandwidth is the measurement of information that a network can handle at one time. It is representated in ‘bits per second’. VoIP services typically require a bandwidth of 10Kbps in each direction, while PSTN services require 64Kbps.
JitterJitter refers to the inconsistent transmission of voice data, resulting in a jittery audio distortion. It can be caused by high latency on a network.
LatencyAlso called ‘lag’, latency is the time it takes for a packet of data to get from one network connection to another. High latency signifies slow network connection speeds, while low latency means fast connection speeds.
Local Area Network (LAN)A LAN is a network of computers that’s limited to a particular area, like an office building or a group of buildings.
Packet lossPacket loss refers to when information traveling across a network gets lost before it reaches its destination. This may happen if network latency is too high, or if the network is congested with traffic.
Session Initiation Protocol (SIP)SIP is the name of the main protocol that enables VoIP services to work. Using a connection method called ‘trunking’, it allows VoIP services to connect via the public phone service network.
Unified communications (UC)Unified communications combines the different ways that businesses communicate – email, IM, phone calls, video conferencing, fax, SMS, etc. UC solutions and systems bring these services together in one place for ease of use.

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Written by:
Julia Watts author headshot photo
Julia Watts Software Expert

Specialising in business software, Julia writes jargon-busting guides about VoIP, fleet management, dash cams, fuel cards, and more. Having spent almost a decade writing for entrepreneurs and reviewing business solutions, she loves helping exciting ventures – big or small – to flourish.

Reviewed by:
James Macey Senior Business Software Researcher

James thinks all businesses can improve if they use the right technology. At Expert Market, he utilises his 4+ years experience as a researcher to offer specialised advice on a wide range of categories from CRM to Fleet Management.