PBX, VoIP, or Multi-Line: Which Type of Phone System Is Best for Small Businesses?

Making business calls used to be simple—and we’re not talking about the days of switchboard rooms full of vigilant operators who pulled and plugged hundreds of cables to connect callers to each other.

In recent decades, business phone systems have become much more complicated. Traditional multi-line phone systems have been digitized. PBX systems, once referring to complex on-premise networks, have gone “hosted.” And virtual VoIP service has entered the stage, providing greater call flexibility to remote workers. But understanding the types of phone systems and how they provide solutions for businesses can be a mind-numbing challenge. This post is to help keep your ears from ringing—and to help you decide on the phone system that’s right for you.

Multi-line business phone systems

Using a basic phone line in your office forces you and your employees to share only one line. If you receive several phone calls at a time, your callers are left with busy tones or voicemail boxes. This can frustrate and turn away customers, so offices that grow beyond the capabilities of single-line telephones need to upgrade to a multi-line phone system.

Features of a multi-line phone system

Pro Bullet Low-cost option for very small businesses
Pro Bullet Upgradeable to add lines as business grows
Pro Bullet Less expensive to maintain than PBX
Con Bullet Less flexible and portable than VoIP
Con Bullet Sometimes costly to pay for phone services
Con Bullet Challenging to upgrade to cloud-based systems

Most multi-line phone systems include the following hardware and features:

  • Call waiting, hold, and transfers
  • Conferencing/call joining
  • Directory and speed dial
  • Handsets (wired or cordless)
  • Connections to headsets, computers, and fax machines
  • Screen displays for caller ID and other functions
  • Speakerphone
  • Voicemail

Advanced systems may also include features such as auto attendant, which is an automated answering and call forwarding service.

Simple multi-line phone systems can be an affordable option for very small businesses that need only a couple of extra lines and can’t afford an advanced PBX system. And as the business grows, you can usually upgrade the system to add more lines, although this can incur expensive up-front costs.

But multi-line systems aren’t very flexible or portable. By that, we mean that the system relies on traditional, landline phone networks. Workers in remote locations can’t easily connect to basic multi-line phone systems—you’ll need cloud-based solutions like VoIP for that kind of portability.

Choosing the right number of lines for your business

If you’ve decided that your small business needs a multi-line phone system, answering a few questions from the outset will help you narrow your search. The first is how many lines your office needs. Most systems come in the following structures:

  • 2-line phone system
  • 4-line phone system
  • 6- or 8-line phone system

The simplest—and most affordable—systems give you two separate lines for communication. You may want a two-line system if you work solo from home. You’ll get one line for your home phone and another for business, each kept private from the other.

You may also want a two-line system if you have a small office with a receptionist. This opens one line for someone to make calls and another for other functions like a fax machine.

If you frequently receive several calls at a time or have many employees, you may need a four-line phone system. This allows a couple of employees to use one or two lines to communicate with each other while leaving lines open for outside callers and business functions.

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Larger businesses with a high volume of calls may need six or more lines. These advanced—and more expensive—systems allow for multiple phone lines to be functioning at a time.

The cost of multi-line phone systems

Your costs for setting up a multi-line phone system depend on how many lines you need, the hardware you choose, and your business phone service plan.

  • 2-line systems can cost between $40 and $175 per handset device
  • 4-line systems range from about $80 to $350 per handset
  • 6- or 8-line systems usually come packaged with multiple devices and may cost over $1,000 for the full system

Additionally, business phone plans vary by the service provider but can cost between about $20 and $75 per line per month.

PBX phone systems

A Private Branch Exchange system, or PBX system, is a centralized telephone network that connects many people within an organization to each other and lets the organization send and receive phone calls.

Fun Fact
An older phrase, Private Automatic Branch Exchange (PABX), refers to centralized private phone systems that often included a human-controlled call switching component. PBX is the standard term today.

PBX doesn’t have the same line limits that standard multi-line systems do (two-line, four-line, etc.). Instead, multiple handset devices connect to one centralized hub, which in turn connects to a Public Switched Telephone Network (PSTN) via a business phone provider.

Medium- to large-sized businesses often choose PBX over standard multi-line systems because PBX offers more advanced and customizable features. And many modern PBX systems can be managed off-site by the service provider.

Features of a PBX system

Pro Bullet Capable of handling medium- to large-business needs
Pro Bullet More reliable than VoIP
Pro Bullet Not reliant on internet connection
Con Bullet Often more expensive than VoIP in the long run
Con Bullet At risk of power outages
Con Bullet Difficult and costly to upgrade or modify

PBX systems generally include the same features mentioned above for multi-line phone systems. But PBX allows for greater functionality, including advanced features like these:

  • Auto attendant
  • Autodialing
  • Automated call routing
  • Call monitoring and recording
  • Call parking
  • Customized call menus
  • Hold music or messaging
  • Least-Cost Routing (LCR)
  • Location-based routing
  • Customer service screen popping
  • Session Initiation Protocol (SIP) trunking
  • Unified Communications (UC)

Learn more about some of these features in the technical terms section below.

Choosing between on-premise and hosted PBX systems

Should you invest in a PBX system for your business? A more appropriate question may be: Which type of PBX system should your business invest in?

The traditional PBX model, sometimes called on-premise PBX, comprises a network of phone lines, handsets, and supporting equipment installed and maintained by the business itself. Employees can make interoffice and outbound calls, and customers can call into the PBX system and get routed to the right destination.

On-premise PBX systems require knowledgeable, trained staff to install and manage the systems and to troubleshoot problems. For this reason, traditional PBX can be too expensive for small and medium-sized businesses to maintain.

Alternatively, PBX systems can be managed by a service provider, or host. Hosted PBX systems free you and your staff from needing to be highly knowledgeable and trained in the installation and maintenance of the system. If there’s a problem, you just call customer support.

Ultimately, details about your business, including your staff knowledge, training, and budget, will help you decide which type of PBX system is the right one.

The cost of PBX systems

The cost of setting up PBX depends on whether you go with an on-premise or hosted system.

As with multi-line phone systems, the total cost of a PBX system includes the price of the physical handset devices themselves. If you keep your system in-house, you may be able to purchase whatever brand of handset and related equipment you like.

If you go the hosted route, you’ll likely need to purchase devices compatible with your service provider’s system. That means the provider may choose a system with features you didn’t plan on. For example, IP phones, or phones with internet connection capabilities, are more expensive than their analog counterparts.

PBX system maintenance costs also depend on whether you’ve got a do-it-yourself arrangement. If you already have trained staff who can handle advanced telecom systems, your cost is what you pay these folks. Maintaining a hosted PBX, on the other hand, is handled by your provider and generally included in your service fees.

What’s more, your hosted PBX system may keep you from paying expensive telephone line and service costs, which can reach into the hundreds per month. Ultimately, choosing the hosted path for your PBX system is almost always the cheaper road.

VoIP phone systems

Voice over Internet Protocol, or VoIP, is a fun-to-say word for the latest in business communication technology. In practice, VoIP closely relates to hosted PBX, but there are some technical differences between the systems.

Strictly speaking, VoIP is a method for making voice calls using internet connections instead of traditional Integrated Services Digital Network (ISDN) phone lines. VoIP technology is used in personal-use software like Microsoft’s Skype as well as myriad business voice providers such as RingCentral. VoIP companies use IP technology to deliver advanced communication features to offices.

The major upside to VoIP service is that you get tons of features for a fraction of the cost of an on-premise PBX system. And with few downsides, it’s no wonder many businesses are moving to fully cloud-based VoIP systems for handling all their communication needs.

But we didn’t say “no downsides.” There are a few things to watch out for if you’re thinking that VoIP is the right phone solution for your business.

The upside to VoIP service is that you get tons of features for a fraction of the cost of an on-premise PBX system.

Because VoIP is provided purely through an internet connection, you need reliable high-speed internet. If your connection is too slow or prone to outages, your VoIP system will suffer.

You may have a hard time installing a VoIP system on your own. Unless you choose a fully virtual system that doesn’t use traditional handsets, you’ll need to connect your system using Cat5 cables, which can be tough if you don’t have someone who knows how to handle them. However, most VoIP providers offer installation services (for a price).

Depending on the VoIP company you choose, you may not have access to 24/7 customer support like you do with many traditional phone providers. In addition, some VoIP services make it difficult for users to dial 9-1-1 to connect to emergency services—definitely a cause for concern.

Features of a VoIP system

Pro Bullet Highly flexible and adaptable
Pro Bullet More affordable with up-front costs than traditional PBX
Pro Bullet Updated automatically by your provider
Con Bullet Vulnerable to slow and unreliable internet connections
Con Bullet Challenging to self-install
Con Bullet Known for poorer sound quality

VoIP systems usually include most of the features and services found with traditional multi-line and PBX systems—plus access to more:

  • Advanced reporting and analytics
  • Click to call
  • Instant messaging
  • Internet fax
  • Integration with CRM and other software
  • Log-ins from any device
  • Presence management
  • Video conferencing
  • Virtual phone lines for smartphones
  • Voice-to-text transcription

Choosing the right VoIP system for your business

Like PBX, VoIP technology comes in a few different varieties. VoIP terminology overlaps somewhat with the other phone system types, but we’ve done our best to clarify them for you.

  • Hosted VoIP: A third-party company hosts all your voice services, including taking and routing calls, voicemail, and auto attendant, freeing you from complicated and costly phone installation, equipment, and software.
  • On-premise VoIP: If you’re wary of handing over your voice services to a third party, you can choose to develop and install your own VoIP system—if you have the technology and know-how.
    SIP trunking: Using Session Initiation Protocol, a computing language, SIP trunking allows legacy phone systems to connect to internet networks, such as VoIP. You may want to choose a SIP trunking–enabled system if you need to keep existing handsets and other hardware.
  • Virtual VoIP: Fully virtual systems can take incoming calls and route them to whichever person or device you desire, including smartphones. Small businesses with workers in remote locations may benefit from a virtual VoIP system because it’s lower in cost and highly mobile.
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The cost of VoIP systems

VoIP systems tend to be more affordable than traditional multi-line phone and on-premise PBX systems because they’re handled entirely by a third party.

Monthly charges for VoIP systems range from about $5 to $35 per user per month. Most providers charge no setup fees and give you access to tons of features, including call routing, faxing, video conferencing, and voicemail. If you’re going all-virtual, that’s pretty much all you’ll pay.

If you need to connect your VoIP system to a physical phone network, you’ll encounter extra costs. First, you’ll need IP phones, or phones with Internet Protocol capabilities, which range from about $50 to $400 per handset. You’ll also need to install the infrastructure to get the system running. This installation can be expensive, and most VoIP providers ask you to get a quote for the service.

Frequently asked questions and technical terms

The world of business phones is a complex one. If you still have questions about the types of phone systems or the terms involved, see if we can help with the answers below.

What is an IP phone?

An Internet Protocol phone, or IP phone, is a type of phone device that can connect to internet technology, such as VoIP. IP phones enable businesses to make IP calls, capable of bypassing landline phone networks entirely.

Is VoIP cheaper than traditional multi-line systems for small businesses?

VoIP does tend to be cheaper for small businesses than traditional multi-line or PBX systems. That’s because you can avoid the hardware and installation costs of traditional on-premise systems by paying a VoIP provider for many of the same communication features. However, advanced VoIP systems—and those that connect to traditional landline networks—can be much more expensive.

How do I choose a phone number for VoIP?

Your VoIP provider generally assigns you a phone number (or multiple numbers) for your business. To the outside world, your VoIP phone number will seem like any other, although the area code may not be tied to your physical location.

For a price, you may be able to choose the area code for your VoIP numbers and add toll-free numbers, and you could possibly keep your existing phone numbers.

Hosted PBX vs. SIP trunking: What’s the difference?

Hosted Private Branch Exchange, or PBX, refers to a centralized phone system within an organization that is “hosted,” or managed by a third party.
Session Initiation Protocol (SIP) trunking is a technology that enables an internet-based phone system, such as PBX or VoIP, to connect to traditional Public Switched Telephone Networks (PSTNs).

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Phone system terminology

  • Auto attendant: A sort of electronic receptionist capable of taking, greeting, and routing calls.
  • Cloud-based phone system: Another term for VoIP, which is a phone system entirely based on internet technology that doesn’t require connections to landline telephone networks.
  • Hosted PBX: Rather than set up your own on-premise PBX system, you can subscribe to a PBX provider who will “host” and maintain the system for you.
  • ISDN: Integrated Services Digital Network (ISDN) refers to the standards used by telephone networks to deliver voice, video, and other data through digital, rather than analog, methods.
  • Least-cost routing (LCR): Technology that determines the cost of incoming calls to the business and then prioritizes and routes them accordingly.
  • Multi-line phone system: A traditional analog phone system that uses two, four, or more lines per handset to handle multiple voice calls at once.
  • PABX: Private Automatic Branch Exchange is an archaic term for human-operated telephone routing systems, which have been replaced by PBX technology.
  • PBX: Private Branch Exchange is a type of phone system that connects multiple individuals and devices to a centralized location within an organization, takes inbound and makes outbound calls, and usually connects to a traditional PSTN.
  • PSTN: Public Switched Telephone Network refers to the massive web of landline telephone systems that use circuit-switched technology to route voice calls and communication data.
  • SIP trunking: Session Initiated Protocol technology “trunks” digital voice and other data into information that can be transmitted via traditional phone lines. SIP trunking generally connects PSTNs at one end to VoIP or PBX systems at the other.
  • Unified Communications (UC): UC combines voice, fax, video, messaging, email, and other services into a single business solution.
  • Virtual PBX: As part of a hosted PBX or as a stand-alone service, virtual PBX systems receive calls and route them to any connected device, including desktop computers and smartphones.
  • VoIP: Voice over Internet Protocol is an affordable phone solution for small businesses that use internet technology to send and receive calls, messages, and faxes; host video conferences; and more.

The takeaway

We believe that VoIP providers offer cost-effective small-business phone systems. But depending on your office’s current infrastructure, technology needs, and comfort level with going all-digital, another system like PBX or traditional multi-line may be the right one for you.


At Business.org, our research is meant to offer general product and service recommendations. We don't guarantee that our suggestions will work best for each individual or business, so consider your unique needs when choosing products and services.

Business.org Staff Writer
Written by
Business.org Staff Writer
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