Is VoIP really a cost-effective solution for small-to-medium sized companies? What key factors should we consider?

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As the owner of a small business myself, we purchased our telecommunication system three years ago. As we relocate our offices now, I regret not having purchased a VoIP solution at the time. It would make the move much easier. Our current system is already obsolete in supporting our growing business and needed applications. I am sure we are not alone in our assessment.

The core issue for many small and midsized businesses is that the up-front costs of VoIP are often higher than competitive small key-based or PBX solutions. Where capital is in short supply, it's all too common to make purchase decisions based on up-front costs. Our total cost of ownership (TCO) studies (which analyze the total costs of an asset over its useful life) clearly point out that up-front costs represent less than 20 percent of the overall total costs over the system's lifetime. These costs accrue as additional support, moves, adds and changes costs add up over time – particularly having to expand the system as we grow is costly. Having to replace the traditional phone system in half the lifetime as a comparable VoIP solution negates much of the up-front savings, and alone can justify the higher investment. Additionally, the VoIP solution can deliver additional features and benefits to enable precious productivity gains, such as "find me-follow me," enhanced voice mail services and teleconferencing – all important capabilies for small and midsized businesses trying to maximize the productivity of a thin staff.

On the flip side, SMBs are unable to achieve the savings possible by a larger company via interoffice call savings – or routing calls between locations over the network versus via the telephone exchange and avoiding toll charges in the process. Only if the SMB is less centralized will they reap these additional rewards.

Unfortunately, as was our case three years ago, SMBs continue to focus on the up-front solution costs-versus-lifecycle TCO and additional business benefit impacts of VoIP. It is important to assess TCO and benefits head-to-head when making a telecommunication purchase decision to expand the knowledge and break out of decision making that is focused in the short term, but may be more costly over the long haul.

This was first published in October 2005

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