Voice over Internet Protocol (VoIP) is a technology that allows you to make phone calls via the internet, rather than over traditional landlines. It’s a great fit for most businesses since it’s far more affordable than a traditional landline system, it’s much easier to scale, the call quality is reliably high, and setup and maintenance are simpler than traditional systems.

But how does VoIP actually work? Luckily, VoIP is pretty straightforward—even for complete beginners. We’ll explain how VoIP phone systems work, when it makes sense for your business, and what to look for when choosing a provider.

VoIP Terms You Should Know

To understand how VoIP systems work, it helps to know some basic vocabulary that’ll come up when you’re researching different services and providers. Don’t worry—none of this is super technical. But these will be helpful terms to understand as you start thinking about implementing a VoIP system for your business.

  • Softphones: Softphones are mobile or desktop apps that let you make a VoIP call from your computer or phone. If you’ve ever made a call via Skype or Whatsapp, you’ve used a softphone.
  • PBX: Private Branch Exchange, or PBX, is a private phone network set up for your company. Most can make both internal and external calls. While traditional PBXs are made up of hardware installed at your company, VoIP PBXs are software.
  • Fixed VoIP: A fixed VoIP is one that’s attached to a physical location, much like a traditional phone number. If you run a business that serves primarily local customers, you may want to opt for a fixed VoIP, as your outgoing calls will show up as a local number that can be traced back to an actual physical location.
  • Non-fixed VoIP: Non-fixed VoIP is a VoIP number that’s not attached to any physical location, which means it can be associated with any local area. So if your business makes a lot of calls across different regions, you might want to go with a non-fixed VoIP system, as you’ll have options to change the area code that the call recipient sees to match their local area code—which means they’ll be more likely to answer.

How VoIP Phone Systems Work (in Detail)

While a VoIP phone call might sound just like a traditional phone call, the technology behind it is slightly different.

When you make a phone call using traditional methods, your voice is converted into an electrical signal that’s passed along a landline, bounced to a satellite, or sent to a cell tower before being changed back into sound waves on the other end.

A VoIP system does the same kind of thing, except instead of converting your voice into electromagnetic waves, it converts it into a digital signal. That signal is then sent over the internet, where it’s converted back into sound waves on the other side.

That’s why having a good internet connection is so important for VoIP calls. If there’s a spotty connection, digital signals get lost or corrupted along the way, which means that they can’t be translated correctly back into sound waves on the other side.

When It Makes Sense to Go With a VoIP Phone System

VoIP systems are affordable, easy to set up and scale, and allow for more flexibility than traditional landline systems—which is why we typically recommend them for most businesses. That being said, there are a few other options that may make more sense for your company, depending on your specific circumstances.

VoIP vs. Landline

A VoIP system is going to outperform a landline in almost any setting, since VoIP provides more flexibility and performance at a fraction of the cost.

That being said, you may still want to go with a landline if you work in a very remote location or have trouble with your internet connection. VoIP calls are reliable and high-quality as long as there’s a decent connection, but when the internet goes, the VoIP system goes, too.

You may also want to consider a landline if you work in an extremely security-conscious field. While VoIP systems usually have excellent security, they still rely on internet connections to work, which means it’s possible for hackers to intercept and eavesdrop on your calls. Any good VoIP provider will offer strong security measures to prevent this from happening, but if this is an extreme concern for your business, a secured landline PBX would likely be safer.

Cloud Phone Systems, Virtual Phone Numbers, and Call Center Software

Cloud phone systems, virtual phone numbers, and call center software are other common alternatives to VoIP systems. While they all have similarities to VoIP, they do have some slight differences that might make one or the other a better fit for your business.

Cloud phone systems are VoIP-style systems that keep all your data on a remote cloud, which means that anybody with access to that cloud can view that data. This can be helpful if you need to set up a system where people on your team can view each other’s call and text data but don’t need much more functionality than that.

Virtual phone numbers are basically the phone part of VoIP systems, minus all the other things a VoIP can do, like texting, video calling, and integration with other software. If you just need the phone number and nothing else, a virtual phone number could be a good fit.

On the other end of the functionality spectrum is call center software. This is VoIP software that’s amped up with a bunch of extra features that make life easier for call center staff.

In addition to making VoIP calls, call center software can usually also handle live chat, texting, social media integrations, Interactive Voice Response (IVR), and much more. You can even get specific types of call center software for the functions you need. For instance, if you’re running a customer service department, you might benefit from using inbound call center software. If you have a large sales department, an outbound call center program could be a great fit.

What You Need To Set Up a New VoIP Phone System

Setting up a new VoIP system is usually pretty straightforward, whether you’re starting from scratch or migrating from another system.

The first step is choosing your VoIP provider and making sure your internet connection is up and running. Depending on the type of device you use, you may have to connect a handset to a router, or you could use a softphone, which is an app that allows you to make calls from any device. You can also use an IP phone, which is capable of connecting directly to the internet.

If you’re using legacy hardware, you’ll most likely need to install an Analog Telephone Adapter (ATA) to help your old hardware talk to the VoIP system.

Once you choose your VoIP provider and connect your hardware, make sure you follow your provider’s setup instructions—they should lay it all out clearly for you so you don’t have to guess.

If you’re migrating from another system, you’ll need to request temporary numbers from your VoIP provider while you port your numbers from your old provider, assuming you want to keep the same numbers. If you don’t care about what numbers you have, you can get your VoIP provider to assign new numbers and skip the porting.

What to Look for in a New VoIP Phone System

When considering a new VoIP phone system, you should first think about how you plan to use the system, what features are most important to you, and the number of people who’ll be using it each month. Not only will this help you quickly identify whether a specific provider offers what you need, but it’ll help you calculate costs as you’re researching pricing options across different services.

Here are some of the features you should be looking for when you’re comparing providers:

  • Call quality
  • High uptime rates
  • Scalability
  • Security
  • Integrations with other platforms
  • Number porting
  • Ease of use
  • Pricing

Depending on your business, you may also need advanced features like call recording, voicemail to email, and call forwarding.

Review sites will be your best friend here. Do some digging. One complaint could be an anomaly. But if the same complaint comes up over and over again, that could be a red flag. While most VoIP providers promise nearly constant uptime and excellent call quality, some providers fail to live up to those promises.

Once you narrow your search down to a few providers, take some time to test their customer service. If they’re slow to respond to queries now, they probably won’t get any faster later. But if they’re quick and diligent in their responses,that’s a good sign they’ll be a helpful partner later when you need them.

Not sure where to start your VoIP research? We’ve put together a list of the 12 best VoIP providers to get you started.

Best Practices – How to Get the Most Out of a VoIP Phone System

Once you have your VoIP system set up, you want to make sure you’re using it to its fullest extent. Here are some best practices to get the most out of your system:

  • Use Good Hardware: The quality of calls you’ll get with a VoIP system depends on two things: your internet speed and the hardware you’re using. While you don’t need an ultra-extravagant setup, you should plan on investing in some decent handsets, headphones, or computers to use with your system.
  • Set Up Call Forwarding: One of the best things about VoIP is that it can follow you anywhere you go. Make sure you set up call forwarding so your staff can make and receive calls from the same number whether they’re at their desk in the office or on the road.
  • Explore Your VoIP System’s Features: If all you want to do is make and receive calls, that’s totally fine—but most VoIP systems have a ton more features that can make your life a lot easier. Even if you’re not sure you’ll need them, take the time to explore your system’s advanced features. From ring groups and warm transfers to voicemail transcription and document sharing, a VoIP system offers a lot more than traditional phone systems.
  • Train Your Staff: Most VoIP systems are fairly intuitive, but if your staff is new to VoIP, or if they’re switching over to a new system, take the time to train them on the system. This is especially important if you’ve customized your VoIP or if you want your employees to make full use of the features. And while nobody loves to watch a training video, your employees may thank you later when they don’t fumble through their first call transfer.
  • Bring Your Communications Under One Roof: If you’re switching to a VoIP system, consider consolidating your communications into one system. Many VoIP providers will let you do voice calls, texting, video calls, and voicemail transcriptions on one platform, making it easy to keep track of messaging and avoid the chaos that comes with multiple channels for outreach.

VoIP Phone System FAQs