The true costs of renting vs purchasing VoIP phone systems for small businesses.
We will discuss the true costs of renting or purchasing VoIP phone systems for small businesses. Understanding the investment costs behind a VoIP phone system is one of the most important topics when I meet with clients. Naturally, when it comes to your options with a VoIP phone system, businesses want to know the buying options. What is the true cost of renting or purchasing a VoIP phone system for my business?"
This is a great question because understanding the difference can help businesses figure out which direction to go.
First off, there is no right or wrong choice but there are differences.
Typically most customers prefer to avoid a large capital expense when it comes to technology and choose to rent the hardware.
For example, if you have 20 phones at your business and you want to purchase a VoIP phone system. Buying a new system (hardware, network switches, VoIP router, on-site installation and training fees) would cost approximately $8,000 capital expense. After you pay upfront for your system fees associated with the phone service, you will be billed at a monthly rate.
Conversely, renting gives you the option to budget monthly for your phone solution. For most customers budgeting a payment of $200.00 for your phone system and the associated fees is much easier than paying for everything up front. Think about some of the most successful companies today Netflix, AirBnB, and Uber. They are all crushing it because most customers want to budget their monthly expenses and rent versus own.
There are 4 big difference between renting and purchasing:
- If your business rents the phone hardware, the equipment is warrantied for the life of the agreement and on-site support is included. Since you are "renting" the phone hardware the company who you rented it from is responsible for it.
- In a rental, after the term is over (i.e. 3 or 4 or 5 years) your company will receive all new phone and IT hardware. The technology will be refreshed and you will continue with your monthly payment knowing that you always have the newest and most reliable phone technology.
- If you purchase the equipment, there is an option for a 1 year warranty from the manufacturer but you will be responsible for paying separately for a support agreement in the years to follow.
- When you rent or purchase the equipment, there are different costs associated with the deal. When you rent a rate is associated with the monthly payment price (see below for more detail). When you purchase outright, you are not getting the benefits of a warranty or support. All of these are expenses in addition to the purchase price.
What costs are associated with renting the phone hardware?
When you rent the phone solution, the hardware warranty and support is included, but there are fees built into the agreement.
If you rent the phone hardware, your payment will be factored based on the associated rate with your agreement. Think of it as a mortgage. When you get a home loan, the bank includes interest associated with the cost of doing business. The same applies when renting or financing a phone system.
Most businesses we work with rent the phone technology because it is a low monthly payment with warranty and support included. Additionally, your phone technology never becomes obsolete and you can easily get the newest hardware at the end.
The benefits of renting a VoIP phone system.
One of the biggest advantages of renting is how easy and painless it is to replace phones & IT hardware. Also, when you rent a VoIP phone system, you get the added benefit of evergreen technology. It’s like when you purchase an app on your phone. You are constantly getting up-to-date versions with the most current information. VoIP has the same principal, providing customer with new features for their systems, improving services as time goes on, and keeping the price the same.
Which is better for your business, renting or purchasing?
From our standpoint, clients who rent the phone hardware have warranty and support included with the ability to get the latest and greatest phone technology at the end of the term. These clients pay for their technology on a monthly basis with one low payment and can also take advantage of tax benefits. Rentals have the ability to be 100% deductible under an operating expense, consult with your tax accountant for further information.
Conversely, if your business is cash healthy and you want another option for a tax break at the end of the year, then of course buying a VOIP Phone system as a capital improvement makes sense. Your business can always enroll in a support agreement year 2 and when the phones begin to breakdown in 4-5 years you can refresh them by buying new hardware again.
So is your business better off purchasing or renting the new phones and IT hardware?
From our standpoint, our clients who rent the phone hardware have warranty and support fully included with the ability to refresh the phone technology easily at the end of the term. These clients view technology as an operating expense and always want the latest and greatest.
Conversely, if your business is cash healthy and want another option for a tax break at the end of the year, then of course buying a VOIP Phone system as a capital improvement makes sense. Your business can always enroll in a support agreement year 2 and when the phones begin to breakdown in 4-5 years you can refresh them by buying new hardware again.
Final thoughts on the true costs of buying or renting VoIP phone systems for small businesses.
Of course, your particular needs are going to heavily impact the VoIP system you’re looking into, so when in doubt, consult with an expert. Want to learn more about VoIP phone systems and how they could help your business? Click here to contact us online, or send an e-mail to us directly at email@example.com to learn more about when's the right time for you to upgrade to a VoIP phone system.
By Vincent Finaldi
Vice-President, Tele-Data Solutions
E-mail: firstname.lastname@example.org | Direct Line: (908) 378-1218
What brings me satisfaction is meeting with New Jersey–based businesses and genuinely helping them solve communication and business problems. As someone who has lived in New Jersey my entire life, I love working and playing here. I live in Morristown with my wife, Lisa, and root for the New York Giants.