What is VoIP?: All You Need to Know

voip phone systems

By Aimee Bradshaw | Writer and researcher

What is a VoIP phone system, and how will it help your business?

31% of American businesses already use VoIP to boost productivity and save costs. So why should you join them?

Not only do VoIP phone systems provide you with a cost-effective way to make calls to local numbers and abroad, they allow you to funnel of your communications into one intelligent platform.  This means staying in touch with your customers has never been easier.

There's lots of reasons why VoIP is the future of global communications. Read on to find out more.

What is VoIP?

VoIP stands for Voice Over Internet Protocol, and it's a system that means that voice data is sent digitally via the internet, rather than in sound waves via the landline network.

Because VoIP by-passes the landline, it avoids the costs associated with connecting calls over long distances. Instead, a set fee is paid each month (a bit like a phone contract), and includes things like calls abroad, call data allocation, and call features, such as an auto-attendant.

VoIP phone systems can be cloud-based (hosted on an off-site server) or on-premise (hosted on a server in your office). Either way, you'll benefit from a whole host of phone system features that we will go into later.

And VoIP isn't just about having a physical phone system, either. VoIP suppliers also offer softphone apps (a bit like a more sophisticated Skype), allowing businesses to turn computers, tablets, and mobile phones into full blown VoIP phone systems.

How Do VoIP Phones Work?

VoIP phone systems rely on a process known as packet switching to make and receive calls. With packet switching, fragments of speech are sent back and forth between speakers in small data “packets” during the call. VoIP gateways are then used to compress the data at the one end and reassemble that same data at the other end so that the conversation remains unbroken.

Step 1: Your voice is converted into digital form

When you speak into a VoIP phone handset, your voice enters the receiver as an analog signal. Your VoIP software converts this analog signal into digital chunks (‘packets’) of information using a ‘codec’ – a computer program that converts audio from one form to another.

Step 2: Digital information packets sent across network

The digital information gets sent to a destination device, across a network. If your VoIP system is local use only (for example, employees communicating within a single office building), it uses a Local Area Network (LAN). If you are communicating more widely, the system will route the data across the internet.

Step 3: Digital information turns back to audio

The recipient’s VoIP software uses another codec to turn the digital information back into an audio signal. Some information packets may reach the recipient in the wrong order, or not at all.

And that’s the magic of VoIP software! It reassembles all of this information to reproduce the sweet sound of your voice for the people you’re talking to.

Five Advantages of Switching to VoIP

Voip benefits

✔ Low Cost

Older phone systems require separate PBX tie lines. These require more maintenance and manpower. By contrast, you can integrate VoIP phone systems with your company’s existing digital network.

Read our review of the 10 best hosted PBX phone systems.

As VoIP technology develops, options and price plans change. It’s wise to shop around for the best deal to suit your business needs.

For example, a few years back Vonage seemed like a reasonable alternative to AT&T at around $30 a month. Today, other cheaper business VoIP solutions are available. You can find service plans starting from as low as $19 per handset per month. This means that VoIP phone systems are far and away the cheapest option for small and medium-sized businesses.

Our comparison service makes it easy for you to find the best VoIP phone system deals for your business. Why not provide us with a few details, and have the best suppliers for your needs get in touch with you?

✔ Easy Cross-platform Integration

You can integrate VoIP services easily with other digital services that your office uses, such as CRM. For example, VoIP voicemail transcription delivers important messages to your email inbox, letting you read them on the move.

✔ Full HD Conference Calls

Because VoIP systems are digital, they offer features that you simply can’t find on standard phone systems. Many support live video conferencing – an invaluable feature for team members working remotely or across time zones.

It’s also much easier to add new features to your VoIP solution than it is with a regular phone system.

✔ Never miss a phone call

Thanks to the set up of find me follow me, you never have to miss a call again. This call forwarding system channels callers through your selected list of numbers and devices until someone picks up. You can even set it up so if you don’t answer, the call diverts to an extension, such as an external call center.

✔ Increased Portability

VoIP systems don’t depend on a specific line to manage call traffic. As a result, your employees’ extensions aren’t tied to their desks but to their phones, so they can make and receive calls on the go.

✔ Deep Data Analytics

VoIP makes it easier than ever to track valuable information. Calls can be logged, wait times tracked, and you can even record specific calls on the fly.

By giving you greater access to data, VoIP makes it easy for you to learn where your call staff are going right and wrong.

VoIP Hosting Options

Just like the hardware discussed above, VoIP relies on IP network infrastructure to handle users’ data transmissions. For example, all VoIP phones route their subscribers’ call data through private data centers.

So, before you start looking at specific VoIP features, you need to decide how you will ‘host’ the IP network.

You have three options:

1. On-Premise VoIP (On-Site VoIP)

On-premise solutions are VoIP systems that are custom built for large organizations. Instead of subscribing to hosted VoIP services, some companies prefer to acquire their own in-house VoIP infrastructure. This approach involves working with a VoIP provider to build a secure IP network and integrate it with your existing communications systems.

On-premise systems provide better security, which is why they’re often used in government departments. There are also potential cost savings to be gained over time from avoiding recurring costs of a hosted VoIP subscription.

A serious downside of hosting on-site is that it costs a lot upfront. The types of servers that VoIP networks use are expensive to buy and set-up. This makes on-premise VoIP hosting uneconomical for most businesses. If you have fewer than 500 employees, it’s unlikely you’ll see much ROI from on-premise VoIP.

2. Hosted VoIP (Cloud VoIP)

With a hosted solution, your VoIP provider hosts all essential network infrastructure at their global data centers. You pay a recurring subscription for:

  • Access to their managed VoIP service(s)
  • Enough bandwidth to meet your company’s needs
  • An agreed (but scalable) number of phone lines/users

Tiered pricing for small, medium and large businesses makes hosted VoIP hard to beat in terms of value for money. The subscription model removes the need for a large upfront investment, although fees do increase with the size of your company.

Hosted VoIP is also remote worker-friendly. Major VoIP providers offer software that employees can install on mobile devices. Because the service runs on third party servers, you can make and receive calls wherever you are in the world.

The scalability of hosted VoIP is its biggest draw, letting you change your subscription type to match your day-to-day business priorities. Think about the possibilities for a second:

Scenario 1

Phoning up hot prospects from your mailing list to tell them about next week’s Black Friday sale? You can add Salesforce integration to your subscription and send them online discount codes mid-call to sweeten the deal.

Scenario 2

Expecting a surge in ticket refund requests the morning after your client’s headline act drops out of their festival lineup? Ask your supplier to turn on multi-line call features to help your agents handle the surge in demand.

More often than not, this kind of flexibility will suit you more than being saddled with hardware that will only depreciate over time.

However, the flex you gain with a hosted VoiP subscription is offset by the control you lose over the service itself. Your supplier decides which features to include in each subscription tier, which also leaves system improvements to be made at their discretion. Thankfully, the best business VoIP companies go the extra mile to ensure a great experience for their customers.

3. Hybrid VoIP

Hybrid VoIP combines many of the ‘pros’ of on-site 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?

World-beating VoIP doesn’t have to cost an eye-watering amount. You just have to know where to shop.

We looked already at how things like the number of phone lines, bandwidth allocation and features can factor into VoIP costs. In fact, the cost of VoIP depends on more than just these factors. The location of your business, for example, determines your Internet service coverage, which may affect the VoIP hosting options and features available to you.

Most business VoIP companies pitch their services on a quote-by-quote basis, so the only way to find out how much your VoIP upgrade will cost is to speak to them.

The quickest and easiest way to discover the best phone system deals for your business is through our price comparison tool. It takes no longer than a minute to fill in our short webform, and the top providers will even get in touch with you.

Expert Picks: The Best Business VoIP Phone Systems of 2020

Choosing the best VoIP phone system for your business can come down to prioritizing your specific needs. We've selected five of the best VoIP providers, and detailed why each one would be a good fit for certain requirements. Click on the links in the table to find out more information.

SupplierBest For
8×8Small businesses
JiveSoftphone technology
FreePBXCustomized VoIP software
VonageEnterprise businesses
RingCentralCall center software

VoIP Jargon Decoded

VoIP Jargon

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.

Unified communications (UC)

Unified communications just means the different ways- email, IM, phone calls, video conferencing, fax, SMS, etc. – that businesses communicate. UC solutions and systems bring these services together in one place for ease of use.


Bandwidth 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.


Also 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.


Jitter refers to the inconsistent transmission of voice data, resulting in a jittery audio distortion. It can be caused by high latency on a network.

Packet loss

Packet 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.

Find me follow me

What is find me follow me? It’s a clever forwarding system that prevents you from ever missing a phone call.

As an example, you could set up your phone system so when you don’t answer your work phone, the call automatically forwards to your personal phone. The chain would then continue to perhaps another employee phone, and so on.

You can even set up a forwarding extension to a contact center, where the call would transfer to should no one pick up internally.

Aimee profile image
Aimee Bradshaw Writer and researcher

Aimee is Expert Market’s resident telephone systems, point of sale, and field service software go-to. If she’s not writing about business products, you’ll find her daydreaming about Dorset beaches.

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