Virtual Phone System: What Is It & How Does It Work?

Updated Dec 6, 2022.
Virtual Phone System What Is It & How Does It Work_

Communication is the key to achieving stronger customer relations and improved efficiency among workers.

There is an increasing need for remote communications in the business sector today and the Covid-19 pandemic has only made this more of a pressing issue.

With 38% of companies having employees that work remotely, virtual phone systems are expected to be an integral part of business communications in the coming years. 

Sadly, a lot of business owners still don't have fundamental knowledge of what they are, how they work, or even the benefits that could be derived from their use.

This article sheds a light on everything you need to know about virtual phone systems and makes it easy for you to decide on how to efficiently run your business communications.

What Is A Virtual Phone System?

Basically, a virtual phone system is a communication platform that allows you to complete business communications over the internet.

It is a combination of components that includes a Voice over Internet Protocol (VoIP) for basic phone calling functions and a Cloud PBX for extended call management capabilities.

Incoming calls can be received and outgoing calls can be placed with the use of internet-capable devices like mobile phones, laptops, and desktops.

Differentiated from traditional phone systems that require additional and barely movable hardware to work, a virtual phone system only requires any hardware you already own, as long as an internet connection can be established through it.

These internet calling capabilities, however, are not the only factors that define virtual phone systems.

A lot of companies make use of these advanced systems because of the extra functionality and mobility that it provides to their communication systems.

You are equipped with extra functions and features like SMS texting, advanced business phone numbers, voicemail transcriptions, and advanced caller handling abilities, among a lot of others.

Virtual phone systems serve as very cost-effective mediums through which business communications can be effectively maintained in and outside the office.

A virtual phone system allows your company to grow business activities without needing to physically expand communication resources.

How Does A Virtual Phone System Work?

To understand how a virtual phone system works, you need to know the in-depth description of the components it is made up of.

Although virtual phone services may provide you with extra functionalities like virtual team messaging and video conferencing, the basic components of a virtual phone system are VoIP, a Virtual Phone Number, and a Cloud PBX.

1. VoIP

An acronym for Voice Over Internet Protocol, it is a technology that facilitates the delivery of voice communication or other multimedia data over the internet.

Serving as the telephony part of a virtual phone system, it works by creating a connection from the caller's end to the receiver's end.

Voice or audio data is then converted to packets, transmitted through an internet protocol, and then converted back to voice data when it gets to the receiver's end.

This goes back and forth between the caller and receiver, translating to real-time communication.

VoIP communication can be established through a single app used by both the caller and receiver or through different communication mediums, as long as communication is facilitated by the Internet.

2. A Virtual Phone Number

It refers to a phone number that is not specifically fixed to a single telephone line or device and can be used to make VoIP calls.

These virtual phone numbers forward incoming calls to other telephone lines pre-set by you during registration and can be used to make calls from any device through a VoIP app.

Existing phone numbers can also be used as virtual numbers and serve as both VoIP and analog telephone lines.

Unlike regular VoIP apps that are required to be used by both the caller and receiver, a call from a virtual number can be received outside the VoIP app through a business VoIP.

A business VoIP allows you to communicate with a receiver through both a VoIP app and direct analog telephone lines.

When placing calls, virtual phone numbers connect you directly to the receiver's analog or virtual phone line.

3. Cloud PBX

Firstly, a PBX, or Public Branch Exchange, is a telephone technology used to route calls.

Before cloud PBX, traditional PBX systems were required to be purchased by a company and situated in their office for proper, controlled call routing.

A cloud PBX is the component of a virtual phone system responsible for the overall management of calls going through a virtual phone number.

Unlike the traditional PBX that is required to be physically operated by an employee, cloud PBX providers help you to take care of all the call routing and call management rules already set by you.

Serving extra functionality for managing business phone numbers, you are allowed to set call handling and routing rules while a cloud PBX provider executes calls for you.

So how do these components come together to give you an effective virtual phone system?

When a call is received on a virtual phone number through a business VoIP, a cloud PBX which is controlled by its provider and according to rules set by you helps to automatically and accurately route the call to the receiving phone line or lines.

Phone calls can also be placed through a business VoIP app directly to the virtual and analog lines of receivers.

Differences Between PBX and a Virtual Phone System

1. A PBX is a part of a Virtual  Phone System

Confusing a PBX with a virtual phone system is very easy. While all virtual phone systems make use of a PBX, not all PBX form part of a virtual phone system. This will be explained further. As mentioned earlier, a PBX is a telephone technology that is used for routing calls.

Originally, a PBX was a large unit of hardware that had to be located in the workspace and operated manually.

Traditional PBX machines were difficult for companies to maintain as they were large, needed special storage areas and frequent repairs, alongside a need to be operated manually by a dedicated employee.

Automatic PBX machines were available at some point but were still relatively costly and making changes to call handling rules was painstakingly difficult and time-consuming. Now, cloud PBX exists to solve these problems associated with traditional PBX machines.

A cloud PBX is hosted and managed by an external provider and you, as a business, can gain access to it over the internet.

You are only required to set call handling rules and the cloud PBX provider helps in efficiently executing call routing and call management operations according to these rules.

A virtual phone system is a combination of different components, one of which is a cloud-based PBX.

Making use of VoIP and virtual phone numbers to place and receive calls over the internet, a virtual phone system uses a cloud PBX in taking care of call routing and call management operations.

2. A PBX May Require Different Devices To Work

Apart from differences in how these two systems operate, a PBX and a virtual phone system can be differentiated further according to the pieces of equipment required for them to run.

A traditional PBX, apart from its large machinery, makes use of analog phone equipment like corded or cordless phones and headset, among others.

Virtual phone systems, on the other hand, only require internet-capable devices, like mobile phones and laptops, and VoIP apps to work.

A virtual phone system can also be set up like a traditional PBX with the use of business phones connected wirelessly to a VoIP network and controlled through a cloud PBX.

Phone calls are only received and sent through these desk phones. Virtual phone systems are more user-friendly in configuration than traditional PBX.

Benefits of Using a Virtual Phone System

Today, the use of landline phones is vanishing and an increasing number of individual entrepreneurs and companies make use of virtual phone systems.

Landline Phones are a Dying Breed
Source: Statista

The unmatched advantages offered by virtual phone systems are what has caused this preference change and here are a few you could enjoy:

1. Cost Saving

The most important and apparent benefit of a virtual phone system that cannot go unnoticed by any business is the amount of money that can be saved through it.

Communication is inevitable in any business environment and paying rates per minute for communication between employees and with customers can be very financially draining.

This is most especially difficult to manage when you run a small business and are looking to scale up business activities.

Virtual phone systems make use of a VoIP connection to facilitate communications between you and employees or customers.

Only an internet connection is needed to establish communications and subscriptions for VoIP services are usually paid monthly.

With these, your business enjoys unlimited internet call and messaging abilities throughout the monthly cycle and you are not limited by fear of increasing costs.

Customers or clients sending in calls also enjoy the cost-effective advantages of using a virtual phone system.

Through toll-free numbers, individuals can send in calls directly from a mobile phone without being charged by their carriers.

Not only does this save costs for your customers but they get confident in reaching out for solutions and you prevent their frustrations from inflating due to increased cost servicing.

The cost of equipment needed to run a virtual phone system is also much cheaper than a Landline.

Only internet-capable devices like mobile phones, laptops, and desktops, among others, are needed for a virtual phone system to be set up and put to work.

Cost Saving benefit of a virtual phone system
Source: Nextiva

Considering that internet-capable devices are very much popular in our world today, you don't have to worry about purchasing extra equipment for employees.

2. Easy Setup and Configuration

Virtual phone systems provide your business with communications systems that are fast and easy to set up.

For traditional phone systems, external technical experts are usually required to cut holes and pass wires all around the office which could halt business operations.

Will halting activities be any good for your business? Definitely not.

Virtual phone systems don't need expert knowledge to be set up and only require an internet connection to be used right away.

If you already have an internet-capable device, you already have all the equipment needed to run your virtual phone system.

For businesses that go the extra step in purchasing VoIP phones, these can also be easily set up wirelessly to receive and make calls.

3. Mobility

We live in a fast-paced world where, thanks to the internet, there are a lot of possibilities present.

Landlines or traditional phone systems require desk phones to be used and this isn't one reality you want to be limited to in running a business today.

Virtual phone systems solve this problem by providing an extensive list of solutions for your business communication needs.

Alongside compatibility with internet-capable devices, virtual phone systems make use of cloud PBX, giving you a chance to manage calls from anywhere and at any time.

Calls can be routed to mobile phones, faxes sent as PDFs, and voicemails can be forwarded to emails, allowing you to go for important meetups outside of your office while being connected and available for your business.

4. Intelligent Call Handling

Using traditional phone systems, you have only limited options in managing and directing inbound calls to the right receiver.

Virtual phone systems equip you with a host of call handling options that help to ease out the management of a massive stream of incoming calls.

You can set up an auto-attendant that allows callers to personally choose the department that will deal with their issues.

Calls can be automatically forwarded based on business schedule, allowing you to receive caller voicemails in place of calls when you are outside your business hours.

Alongside these basic call handling options, cloud-based call center solutions can also be enjoyed through a virtual phone system.

These solutions offer you more advanced call handling capabilities such as AI-powered skills-based routing, call queueing and IVR systems, among a lot of others.

The call handling solutions offered by virtual phone systems help you to increase customer satisfaction levels and maintain an efficient communication network.

5. Improved Team Collaboration Options

Team collaboration is an inevitable part of running a business with multiple employees. 

With the advent of the Covid-19 pandemic, this important aspect of running a business has become extremely difficult to maneuver.

Through the increase in remote working, landlines or traditional phone systems have become almost ineffective in facilitating business communications.

Virtual phone systems help to solve these problems seamlessly.

Not only can you and employees communicate from any device, anywhere, and at any time, virtual phone systems equip your business with extra remote team collaboration capabilities. 

Audio and video conferencing are common to all top virtual phone systems.

Through these, you get to bring your team together and engage in highly interactive discussions and meetings in a centralized workspace.

Secured and dedicated conference call groups can also be created for more confidential meetings with clients.

6. Real-time Reports And Analytics

Access to reports and analytics data is one of the easiest and most effective ways of improving and scaling up business activities.

Before virtual phone systems, only companies with advanced equipment and specially trained employees were able to obtain comprehensive information about business communications.

Now, even small businesses or startups can have access to call analytics and useful reports.

You get to know what days of the week are the busiest, the total volume of calls sent towards your business line, among others, making important decisions concerning customer service improvement easy to make

With all these, it is no doubt that virtual phone systems are almost inevitable in maintaining a business communication system that is effective in our modern world.

Buyer’s Checklist for Your Next Business Phone System

Virtual phone systems exist to facilitate both personal and business communications.

While the most basic virtual phone systems cover all the personal communication needs of an individual, for businesses, there is a need for more functionality to maintain proper communication channels between employees and clients. 

Apart from the cost of a virtual phone system, some of the most important factors you need to take note of before committing your business communications  include;

1. Scalability

The growth of a business venture is one thing that is always on the mind of a business owner. 

As a business grows, more employees are needed to keep it running and there is communication with an increased number of clients or customers.

Getting to know how easy it is to scale up a communications system with a business phone provider is an important step in planning against future hurdles in seamlessly and efficiently running your business.

2. Reliability

A virtual phone provider experiencing downtime can be devastating to your business.

Looking up the downtime history of a virtual phone system provider as well as its rating among reviewers and uptime percentage will help to plan against unfortunate future occurrences.

An uptime of 99.99% or better should always be the standard to go for.

3. Quality Of Service

Like every other industry, regulatory bodies are always available to ensure that consumers are protected and have access to high-quality goods or services.

For virtual phone systems, accreditations like HIPAA, PCI, and SOC 2 are trustworthy and indications of quality service.

Alongside quality VoIP services, making use of an accredited virtual phone system assures you of secured communications between your business and customers.

4. Functionality

The amount of features a business phone system offers you is the most important factor that distinguishes the good ones from the best. 

Review your communications needs and make sure that a chosen virtual phone system provides all the solutions required to comprehensively run your business communications.

A virtual phone system with an extensive list of features allows for easy scalability and ensures that there is no need to change service providers when new communications needs arise.

5. Customer Support

With automated systems, running into problems is almost inevitable.

The effectiveness of a customer service system and how you can get expert support should be important factors to also consider before choosing a virtual phone system.

Best Virtual Phone Systems

1. Grasshopper

Best Virtual Phone System Optimized For Small Businesses

Grasshopper is the Best Virtual Phone System Optimized for Small Businesses

As one of the best business phone services for small businesses and with over 350,000 customers worldwide, Grasshopper provides all the solutions needed to deal with the communication needs of your business.

Grasshopper is one of the best VoIP providers and gives you extra options like cloud PBX and audio/video conferencing.

You can easily port existing numbers, own local and vanity numbers, and have a chance to use toll-free numbers, making business communications more convenient for employees, partners, and customers.

Grasshopper equips its users with mobile and desktop apps, making call management activities more portable and easier to engage in.

With a Grasshopper virtual phone number, you can enjoy unlimited calls and texts, set automatic call and message handling rules, and generate reports through its advanced cloud PBX system, among a lot of others.

Voicemail management and virtual fax options are also available to you, capping off a comprehensive list of communication solutions.

2. RingCentral

Great Virtual Phone System For Facilitating Large Team Collaborations

RingCentral is the Great Virtual Phone System for Facilitating Large Team Collaborations

RingCentral was founded in 1999 and centers on providing cloud-based Unified Communications solutions dedicated to making large, remote team collaborations more efficient and effective.

The company’s technology is constantly improving. In December 2020, RingCentral purchased DeepAffects to develop artificial intelligence-based speech analysis and speech recognition.

RingCentral is one of the best video conference software platforms in the industry today, presenting you with RingCentral Video, an app that facilitates high-quality team messaging and one-click HD video conferencing operations.

You enjoy easy-to-use file sharing and task management options on a centralized workspace, simplifying the workflow between employees and team members.

RingCentral also offers advanced VoIP services such as intelligent inbound call routing for automatic call handling options and powerful outbound call and messaging options that allow you to reach a massive number of customers at the same time.

You enjoy seamlessly streamlined online business workflow through integrations with Office 365 and Google Workspace as well as simplified digital engagement options for easy customer contacting.

Alongside conversation encryption options for extra privacy, RingCentral gives you an open API that allows for extra functionality and system analytics for improved call management activities.

3. Jive Communications

Virtual Phone System For High-Growth Businesses and Public Sector Institutions

Jive Communications is a Virtual Phone System for High Growth Businesses and Public Sector Institutions

Jive Communications, now GoToConnect, also provides cloud-based unified communications services to your business and serves as a cost-effective phone system for large enterprises to properly scale business communication activities.

Its unified communications services equip you with HD  video conferencing options that allow up to 250 participants.

You also have access to one-click screen sharing options and can create up to 25 HD video feeds at the same time.

An advanced ring group option is made available to you, serving as a useful call center solution for efficiently managing a large stream of inbound calls.

With Jive Communications, you enjoy announcement options for pre-call and waiting time, as well as unlimited call queues, advanced call routing, and caller ID options.

Jive Communications also presents you with real-time analytics to boost agent productivity and offers extra agent management options for supervisors.

4. Nextiva

Best Virtual Phone System For Medium-sized businesses

Nextiva is the Best Virtual Phone System for Medium sized businesses

Nextiva is currently trusted by over 100,000 businesses worldwide and equips your business with a long list of communications solutions to choose from.

With an integrated CRM system and a lot of popular and high-quality VoIP options to choose from, one that is defining for your business is its SIP Trunking services.

Through SIP Trunking, you can manage a large stream of incoming calls through the use of a cloud server and without a need for analog lines or any primary rate interface.

You save up to 70% on PBX phone billing and can maintain high-quality communications between your business and customers.

Nextiva also offers you real-time data insights for easy and effective service improvements as well as simplified digital engagement options for easy contact through social media and emails.

Virtual Phone Services FAQ

What is the best virtual phone service?

Grasshopper proves to be the virtual phone service that offers the best value for money.
Although a lot of virtual phone systems give you advanced VoIP options, Grasshopper presents the most scalable virtual phone service in terms of prices and features.

As a Unified Communications system, you have access to a cloud PBX and audio/video conferencing options that present a chance for efficient scalability to small businesses.

Compatibilities with Google Workspace and Microsoft 365 apps ensure that you have a one-stop platform to streamline all your online business activities.

How do I set up a virtual phone system?

Setting up a virtual phone system is very easy and may not take up to 30 minutes to complete.
Firstly, after selecting your preferred virtual phone service, you are required to sign up, select your desired plan, and choose the type of business phone number you wish to use for your business (Toll-free, local, etc).

After receiving verification emails and creating your passwords, you are required to record a greeting message.

A greeting message is an automated voice your customers hear over the phone when reaching out to you and, due to this, should be kept friendly and professional.

Upon completing this, extensions are needed to be set up if you have different departments or employees in different office rooms.

Extensions serve as the pathways for routing calls and you are allowed to set them up anyhow you wish.

After successfully registering business phone numbers and creating extensions, you can now receive and manage calls and voicemails through your virtual phone system.

How can I get a free virtual phone number?

A lot of virtual phone services offer virtual phone numbers for free, however, fees are typically charged for setting up your virtual phone system.

This means getting a business phone number from them isn't entirely free.

Thankfully, some of the best virtual phone services offer free trials, giving users a chance to test out their services before getting fully committed.

Virtual phone numbers can be gotten for free through this but for a short period before you have to pay for virtual phone system setup and VoIP services.

However, some virtual phone services, like Nextiva, do not charge setup fees after the expiration of your free trial and only charge you for VoIP services.

What are the top features of a virtual phone system?

Virtual phone systems come with hundreds of features. They include mobile and desktop apps for easy call management, dynamic call handling, and call forwarding options, auto-attendants to save time and manpower, text messaging, call analytics and report generation, audio/video conferencing capabilities, E911, and anonymous call rejection to reduce unnecessary traffic.

How much does a virtual phone system cost?

After paying setup fees, which differ based on the service provider chosen, virtual phone systems are usually charged monthly at $30 on average.

You can also get a virtual phone system for $12 monthly if you intend to manage small-scale communications and up to $60 monthly for large-scale communications.

For virtual phone systems involving VoIP desk phones, you may spend an average one-time purchase fee of $50 to $250, depending on your communication needs.

Extra costs for services like IT maintenance and other complexities associated with traditional phone systems are avoided, helping you to save up to 70% on your business communications.

Can a virtual phone system be used at home?

Yes. Virtual phone systems can be used from home, school, or anywhere.

The mobility and flexibility in communications are a couple of the most cherished benefits of a virtual phone system.

It only needs an internet connection on portable devices like mobile phones and laptops to work.

Save Telephone Costs with Virtual Phone Systems

No matter the scale of business you run, virtual phone systems are always going to be the most efficient and cost-effective choice in facilitating business communications.

There are a lot of virtual phone service providers in the market today but only a few give you great value for money in both pricing and features offered.

Of these few, the best virtual phone systems in the market today happen to be Grasshopper, RingCentral, and Jive Communications.

  • Grasshopper offers a multitude of Unified Communications solutions and one of the most price-friendly plans that allow small businesses to easily scale up business activities.
  • RingCentral presents a long list of advanced features optimized to make large remote team collaborations as effective and seamless as possible.
  • Jive Communications provides a virtual phone system best suited for managing the communication needs of large enterprises.

Making use of any of these virtual phone systems assures you of proper business communications for your peculiar business needs without having to spend a fortune.

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Martin Luenendonk

Editor at FounderJar

Martin loves entrepreneurship and has helped dozens of entrepreneurs by validating the business idea, finding scalable customer acquisition channels, and building a data-driven organization. During his time working in investment banking, tech startups, and industry-leading companies he gained extensive knowledge in using different software tools to optimize business processes.

This insights and his love for researching SaaS products enables him to provide in-depth, fact-based software reviews to enable software buyers make better decisions.