What Is a PBX Phone System?

Woman making a phone call in an office

The world of business telephony is filled with jargon – and PBX is an acronym you’ll come across quite a lot during your research. But what is PBX, what are the different kinds of PBX, what are its benefits, and how much does it cost? Read on, and we’ll answer these questions and more.

What Is PBX, and What Is It Used For?

A PBX is a private branch exchange. In other words, it’s a business’s internal phone network. PBX systems were originally created to make it possible for employees to call each other internally, for free, via extension numbers – without having to use (or pay for) the public landline network.

PBX systems also route and switch company calls, both external and internal. Think of a PBX as an automated, non-human switchboard operator. Due to the nature of these key benefits, PBX systems are best suited to businesses with lots of different people using different phones.

The million-dollar question, of course, is this: is it actually necessary for your business to invest in a PBX system? The answer depends on how you want to run things. If you want your team to use the PSTN (public switched telephone network, or even more simply, the landline) to make phone calls, then yes, you would certainly benefit from a traditional PBX system.

But if you’d like your team to utilise modern VoIP technology and make phone calls over the internet – which we’d strongly recommend instead – then a full-blown PBX system isn’t strictly necessary. That’s because many VoIP phone systems now offer all the same capabilities as a PBX, meaning you don’t have to search specifically for a PBX system any more. Of course, there is IP PBX, which is a kind of VoIP system.

A little confused? Don’t worry. In the next section, we’ll explain these different types of PBX in more detail.

What Are the Different Kinds of PBX?

At the very start of your research into PBX systems, you should ask yourself one key question: do I want traditional PBX, or IP PBX? The difference between these two kinds of PBX is in the types of calls that each system works with. Let’s compare:

Traditional PBX vs. IP PBX

Traditional PBXIP PBX
Also known as:Analog PBXVoIP PBX, virtual PBX
What is it?These systems make and accept phone calls via the traditional landline network.

A traditional PBX system involves a PBX board or box that’s connected to the landline network with copper wiring.

These systems make and accept phone calls over the internet.

For that reason, an IP PBX system is largely software-based, and can simply integrate with the internet network you’re already using.

Where is it kept, and how is it managed?Traditional PBX systems are on-premise (also known as on-site or self-hosted), which means the system will live entirely at your office premises. This gives you direct control over your system, as you’ll be able to customize it to your own specifications. However, you will be limited to the number of lines and extensions your system has, and will have to pay for more if you need them.

You should be wary that these things can’t be done by just anyone – you’ll need in-house IT professionals to perform updates and configurations for you.

IP PBX systems can be kept on-premise, or hosted elsewhere. With on-premise IP PBX, your system software will be hosted on a server on your premises. With hosted IP PBX, the system will be housed elsewhere by your provider, taking the responsibility of updates and maintenance out of your hands.


There are two ways your provider might host your hosted PBX software: either on a server in a secure data center, or on the cloud.

Cloud-based PBX is ideal if you have remote workers in your team, as they’ll be able to access and use the system from home using an app.

How will I pay for it?The first step is buying all the hardware your system needs, and leasing the PBX software. You’ll then need to factor in the price of installation, and ongoing maintenance and IT support. So, both setup and recurring costs can be pretty high, unless you already have these things sorted on site.

With traditional PBX, you’ll also pay rates for each call your business makes, much like with your landline phone at home.

Usually, you’ll pay for an IP PBX system with a monthly subscription fee (charged per system user). The size of that fee will often depend on the package and feature set you’ve plumped for.

Phone calls within Canada and the US should be included in your package, and so won’t cost you anything. Some providers offer free international calls, while others apply an extra charge to them.

Should I Invest in Traditional PBX or IP PBX?

If you’re starting from scratch, IP PBX is the way to go. VoIP-powered systems are the future (and the present), while landline systems are steadily declining in popularity and usefulness. Plus, setting up a traditional PBX system from scratch can prove very expensive thanks to all the hardware and expertise you’ll need to pay for (more on that later).

On the other hand, if you already have the copper wiring and hardware in place for a traditional landline PBX system, it could well be worth making use of that and setting one up. But we would definitely recommend choosing a hybrid system that can also deal with VoIP calls. That’s right, they do exist – and who doesn’t like having the best of both worlds?

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What’s the Difference Between PBX and VoIP?

The answer to this question depends on whether we’re talking about traditional PBX or IP PBX.

Fully traditional PBX systems have nothing to do with VoIP technology. The fact that they make and accept calls via the landline network, not over the internet (à la VoIP), results in a few differences:

  • Traditional PBX systems cannot be accessed and used remotely, whereas VoIP systems do have that potential
  • VoIP systems tend to be more feature-rich, and they’re also easier and cheaper to scale than traditional PBX
  • VoIP systems often cost less, because you won’t have to buy any hardware, pay IT professionals for maintenance, or pay for phone calls within Canada and the US

So, onto IP PBX. As we know, VoIP technology is the means by which phone calls can be made and accepted over the internet. By that definition, we can simply think of an IP PBX system as a kind of VoIP system.

If you want your phone system to be powered by VoIP tech, note that many VoIP systems now offer IP PBX capabilities without actually describing themselves as PBX systems. That’s why it can help to avoid getting too bogged down in the jargon. Just make sure the VoIP system you’re planning to invest in can do everything your business needs it to do – whether it describes itself as PBX or not – and you won’t go too far wrong.

What Are the Benefits of PBX?

1. Cost savings

This applies to both traditional PBX and IP PBX. Traditional PBX is cheaper than a standard phone system for the following reasons:

  • Internal calls are free. PBX systems route calls internally, without sending them out to an external exchange, which means they don’t incur any charges.
  • External phone lines cost less. This is because, with a traditional PBX system, multiple phones can share external lines between them. This means that you don’t need to pay for an individual line for each phone that needs to make external calls.

An IP PBX system will save you even more dollars and cents. That’s because:

  • Calls within Canada and the US are free. After all, they’re being made over the internet and not the phone network, so you don’t have to pay any network rates.
  • Phone lines aren’t necessary. If your phones aren’t already hooked up to the landline network, don’t worry – they don’t need to be. You can avoid the expense of setting up and using lines.
  • Hardware is less expensive. In fact, if you opt for a cloud-hosted IP PBX system, you won’t need any hardware at all – your team will be able to access and use the system on their smartphones.

2. Simplicity

Imagine a standard phone system, in which each phone needs its own direct line. Now imagine a growing business, with multiple phones and phone numbers. Quickly, the need to install new lines and share new numbers with clients and the public becomes unmanageable.

A PBX system does away with all that. As we’ve mentioned, PBX systems don’t require an individual line for each phone. They also make it possible for a number of different phones (all of them, if you want) to be linked with one number, meaning your customers won’t need to make sense of a directory of different names and numbers just to contact the business.

3. Professional features

Speaking of customers, PBX systems come with a variety of features that make calling your business a slick, pain-free experience. Let’s take a look at some key examples:

  • Virtual receptionists and auto attendants – these automatically direct callers to the right person or team. Callers simply state their purpose, or press a series of buttons, to tell the system whose phone to ring. It’s easy for the caller, and will save you having to hire a receptionist.
  • Call queues – if their desired team member is already on the phone with someone else, your caller will be placed in a queue, rather than asked to hang up.
  • Call forwarding – you can customize your call routes so that, if a particular team member is unable to answer their extension in a certain number of rings, it’ll ring through to a specified alternative extension, and so on until the call is answered. A similar feature, called find me follow me, lets your employees have calls ring through their different devices (for example, their desk phone, then their cell phone) until they pick up – but this is only available with IP PBX.

All of this not only makes contacting you easier, but gives the caller the impression that they’re dealing with a professional business, boosting the credibility and public perception of your organisation.

4. Reporting and monitoring

With a standard phone system, you wouldn’t know how many calls your team had been fielding until your bill came in. By contrast, a PBX system can produce reports on the phone calls it has facilitated, showing which extensions are receiving the most calls, how long calls to certain extensions typically take, and who’s using the system to make personal calls. This can help you to allocate phones more effectively, and stop the misuse of company equipment.

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How Much Does a PBX Phone System Cost?

How much your IP PBX system costs will depend on whether it’s a hosted solution (your provider hosts it for you) or an on-premise system (you host it yourself).

Hosted IP PBX costs

With hosted IP PBX, you’ll find your setup costs are very small (unless you choose to buy loads of high-spec IP phones for your team). Instead, you’ll pay for the system on an ongoing monthly basis. The size of this fee will depend on the provider you’ve chosen, and how advanced your feature set is.

With that in mind, let’s take a look at the numbers typically involved:

Setup and installationFree
IP PBX software subscription$15 – $60 per user, per month
IP phones$50 – $500 per phone

On-premise IP PBX costs

These days, the most affordable way to install an on-premise IP PBX system is to go for an open source PBX software solution. Such software is usually free to download, and will turn the computer it’s installed on into an on-premise PBX server, hosting all the necessary software and acting as a central control hub.

If a free PBX system sounds too good to be true, well, that’s because it is. These systems aren’t designed to be set up, configured, and maintained by a layman or laywoman, and so you will need to pay someone with the right technical experience to do those things for you. In many cases, you’ll also need to pay extra fees to install the more sophisticated communications features offered by the software provider. Even so, open source PBX is usually still cheaper than the alternative.

And what is that alternative? Building your own IP PBX system, with a server, gateways, and an ethernet switch, all of which can add up to hundreds of dollars. There’s also still the software to pay for, along with installation and setup (which can cost around $1,000) plus ongoing maintenance.

Traditional PBX costs

Considering traditional analog PBX? It’s worth knowing that the initial setup costs are going to be high. Let’s take a look at the different components you’ll need to pay for, and how much they’re likely to cost:

ExpenseCost (for a team of 20)
PBX hardwareAround $6,000 upfront
Software licensesAround $4,000 upfront
Setup and installationAround $1,000 upfront
Analog phones$50 – $250+ per phone
Phone line rental$50+ per line, per month

Expert Verdict

We won’t hold back: in terms of functionality, affordability, and simplicity, IP PBX is the way forward. We’d recommend IP PBX every time, unless your office has already got all the infrastructure for traditional PBX in place. Even then, we’d suggest upgrading to a hybrid system that can also make and take VoIP phone calls.

Of course, whether or not you need a full-blown PBX system is up to you. The easiest option may be to seek out a VoIP system (whether hosted or on-premise), and make sure it provides all the features you need – including extension numbers, automatic call routing, and the other great PBX features we’ve discussed.

If you’d like help with finding the right phone system for your business, you should try our free quote-matching tool. It’ll ask a few questions about your communications needs, and then match you up with trusted phone system providers that can supply what you need. They’ll then be in touch with free, no-obligation quotes that are tailored to you. Our service is completely free, and the fastest and easiest way to compare your options.

Written by:
Julia Watts author headshot photo
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.