Written by Aimee Bradshaw Updated on November 13, 2019 On this page What is VoIP? How VoIP works 5 benefits of using VoIP VoIP hosting options How much VoIP costs Glossary of VoIP terminology Expand 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. It's a type of phone system through which voice data is sent digitally via the internet, rather than in sound waves via the landline network. Put simply, with VoIP, you make and take calls over the internet, instead of over a traditional phone line. Relying on wi-fi instead of the landline network comes with an array of benefits, which we explore later.Because VoIP bypasses the landline, it avoids the costs associated with connecting calls over long distances. Instead of paying per call or per minute, you pay a set fee each month (a bit like a cell phone contract). This fee covers things like calls to other countries, call data allocation, and sophisticated call features, such as auto-attendants and call recording.Unlike with an old-school analogue phone system, you don't need to have desk phones to use VoIP (though you still can, if you prefer them!). That's because VoIP systems come with softphone apps which, when installed, can turn computers, tablets, and cell phones into business VoIP phones. Handy! It's also possible to turn existing analogue desk phones into VoIP phones – you just need to attach a VoIP adapter.VoIP enables you to make business calls using desk phones, computers, and cell phones – it's a truly mobile solution How Do VoIP Phones Work?Bear with us, because this is a little technical. VoIP phone systems rely on a process known as packet switching to make and receive calls. During packet switching, fragments of speech are sent back and forth between speakers in the form of digital chunks of information – known as packets – during the call.VoIP gateways are used to compress the data at the one end and reassemble that same data at the other end, so the conversation remains unbroken.Here's more detail on the process, in three simple steps:A visual representation of VoIP's packet switching processStep 1: Your voice is converted into digital formWhen you speak into a VoIP phone phone, your voice enters the receiver as an analog signal. Your VoIP software converts this analog signal into packets using a codec – a computer program that converts audio from one form to another. In this case, from analog to digital.Step 2: Digital information packets are sent across a networkThese packets are sent to your recipient's phone via the internet. If you're calling someone local (for example, a coworker in the same office building), the packets will travel across your Local Area Network (LAN).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'.Step 3: The digital information turns back into audioThe 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! What are the Advantages of Switching to VoIP?✔ Low CostOlder 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 top 10 hosted PBX phone systems.As VoIP technology develops, options and price plans change. It’s wise to shop around for the right 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 great VoIP phone system deals for your business. Why not provide us with a few details, and suppliers that can cater to your unique needs will get in touch with you.✔ Easy Cross-platform IntegrationYou 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 CallsBecause 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 callThanks 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 PortabilityVoIP 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 AnalyticsVoIP 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. What are the 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 needsAn agreed (but scalable) number of phone lines/usersTiered 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 1Phoning 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 2Expecting 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, good business VoIP companies go the extra mile to ensure a great experience for their customers.3. Hybrid VoIPHybrid 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?Compared to other phone systems, VoIP can be very cheap. VoIP system costs typically range from $15 per user, per month to over $60 per user, per month. How much you pay within that will depend on the VoIP system features that you need, and what your supplier charges for them.As you can see from these figures, VoIP suppliers tend to charge a monthly fee, and they charge that per user – so the amount you end up paying in total will come down to how many of your employees need to use your VoIP phone system.Along with these factors, things like number of phone lines, bandwidth allocation, and even the location of your business – which determines your internet service coverage, potentially affecting the VoIP hosting options and features available to you – can all factor in to how much VoIP costs you.So, as you've probably worked out by now, we can't tell you exactly how much VoIP will cost you specifically. What we can do, though, is help you to gather personalized VoIP quotes from top suppliers – it's the quickest and easiest way to narrow down and compare your options!Simply answer a few quick questions about your business and its needs, and behind the scenes we'll match you up with VoIP system suppliers that can provide what you're looking for. They'll then get in touch directly with no-obligation, tailored quotes for you to compare. Best of all, it's totally free! ▶ Read more: Telephone System Costs: The Ultimate Guide VoIP Jargon DecodedAnyone who's spent any amount of time researching phone systems will know how confusing the industry can be – not least because it's filled with bizarre technical jargon.To help you better understand the mysteries of VoIP, we've produced a quick and easy glossary of VoIP terminology.The jargon that surrounds VoIP phone systems can be overwhelming...TerminologyDefinitionBandwidthBandwidth 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.Find me follow meWhat 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.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 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. Aimee Bradshaw Writer and researcher Aimee is Expert Market’s resident telephone systems and point of sale go-to. If she’s not writing about business products, you’ll find her daydreaming about dog walking on Dorset beaches.