Assessing TCO for Hosted PBX

TCO for hosted PBXWhen you’re speaking with your SMB customers about cloud communications, they almost certainly will have plenty of questions. And one of those questions will surely be about cost – they’ve likely heard that moving their communications to the cloud will save them money, but many competitors still sell FUDG (Fear, uncertainty, doubt, and greed) and say that hosted actually costs more over time. That is rarely the case, so you need to have solid information to be able to answer their questions; hopefully, this post helps guide that conversation.

When calculating TCO (Total Cost of Ownership) of cloud communications, your analysis will be different for hosted PBX and VoIP vs premise-based VoIP solutions.

(We’ll be making some assumptions here, so our TCO analysis can’t be exact; however, there are some basic truths that most of your customers can count on.)

The total cost of ownership for Hosted PBX is virtually always lower for small to mid-sized companies, when you compare it to purchasing a premise based solution with one or more T1’s. Hosted PBX is less up front, and less over time, which is why the TCO is virtually always lower/better compared to alternative solutions.

As an example, let's use a 50 seat deal, and assume a premise-based solution costs about $700/SIP device (including the PBX in the closet with similar features), and a Hosted PBX SIP device costs on average $200. Do the math, and the premise based VoIP solution costs at least $35,000 up front, while the Hosted PBX solution costs $10,000. So the Hosted PBX is less up front. Then let's look at the monthly fees for hosting (if any) and usage. In most cases, Hosted PBX services are less, or worst case, the same. For our purposes here, this is where we have to make some assumptions on average usage, and the profile of the customer. Typically, the premise-based solution is $1,000/mo for T1, usage, etc. And the Hosted PBX solution is $900/mo.

So now you have the two most important parts of the equation, and in a typical situation it's clear that the Hosted PBX solution is less up front, and less over time. Oh, and it gets better. With the premise based VoIP solution, you have to figure in the annual maintenance, as well as some level of payroll for moves, adds, and changes. Of course you can outsource that to your provider, but that costs money above the maintenance on the PBX and related equipment/software.

Keep in mind that for both solutions, you’ll want to optimize your local area network to run voice and data optimally. That normally includes making certain your router can do QoS, your switches can be VLANed, maybe you have QoS at the switch layer, and your cabling is good. Again, that goes for either solution, so that neutrals out of the TCO analysis, but there might be some expense to do a proper implementation. This should be nominal for most modern LANs.

Another part of this equation is the broadband needed to facilitate the Hosted PBX solution. Don’t assume you will run this on your existing broadband connection. You can, but make sure you have the right type and quality of broadband, but from an expense standpoint, that is normally already figured into the above monthly recurring estimate.

As Interconnects and MSPs talk to their customers about cloud communications, it’s important to find the solution that best suits the customer’s specific needs. Figuring out their TCO is an important part of the sale, whether Hosted PBX or SIP Trunking is the best fit. We’ll do a blog post on SIP trunking TCO in the coming weeks. Good selling.