What is VoIP? A plain-English guide for small businesses

VoIP in one sentence

VoIP (Voice over Internet Protocol) means your phone calls travel over the internet as data, instead of over the traditional copper telephone network. To the person calling you, it's just a phone call to your normal phone number. Behind the scenes, your voice is turned into small packets of data, sent across the internet, and turned back into sound on the other end.

How a VoIP call works

1. You pick up a desk phone, open an app on your cell, or click call in a web browser.
2. Your voice is digitized and compressed by a codec, which is simply the method used to encode audio.
3. The audio travels as data over your internet connection to your VoIP provider.
4. The provider connects the call to the person you're calling: either directly, if they're on the internet too, or through the regular phone network if they're on a landline or cell phone.

Because the "phone system" lives with your provider in the cloud instead of in a box in your closet, this is often called a cloud phone system or hosted PBX. A PBX (private branch exchange) is the traditional name for a business phone system: the thing that handles extensions, transfers, hold music and phone menus.

What VoIP can do for a small business

Because everything is software, a modern VoIP system can do things that used to require expensive hardware:

• Auto-attendant (phone menu): "Press 1 for sales, press 2 for service."
• Ring groups and call queues: ring several people at once, or line callers up until someone is free.
• Ring anywhere: your business number rings your desk phone, a mobile app and a web phone, so you can answer from wherever you are.
• Voicemail and greetings: different greetings for business hours, after hours and holidays.
• Business texting: send and receive text messages from your business number instead of your personal cell.
• Video meetings and team chat on many plans.

Not every provider or plan includes every feature, so always check the feature list for the plan you're considering.

What you need to run VoIP

A reliable internet connection

VoIP doesn't need a huge amount of bandwidth, but it does need a stable connection. As a rough rule of thumb, a typical voice call uses on the order of 100 kbps in each direction, so most business broadband connections can handle several simultaneous calls easily. What matters more than raw speed is consistency: low latency (delay), low jitter (variation in delay) and little packet loss. A connection that's fast on a speed test but drops out regularly will cause choppy calls.

A decent router and network

Many call-quality problems come from the local network rather than the internet connection itself. Business-grade routers can prioritize voice traffic (often called QoS, quality of service), which helps when someone in the office is uploading large files. Wired connections for desk phones are generally more reliable than Wi-Fi.

Something to talk on

You have three options, and you can mix them:

• IP desk phones that plug into your network. Many are powered over the network cable (PoE), so they don't need a separate power adapter.
• Mobile apps that turn your cell phone into an extension of your business line.
• Web phones or desktop apps with a headset.

VoIP and 911

Because VoIP isn't tied to a physical phone jack, your provider can't automatically know where a phone is. That's why every VoIP line needs a registered 911 address, and why it matters to keep it up to date if a phone moves. Federal rules also require that multi-line business systems let people dial 911 directly (without dialing 9 first, for example) and provide location information to emergency services. A good provider will ask for your 911 address during setup and explain how to update it.

What happens if the power or internet goes out?

Desk phones need power and internet to work. If either goes down at your office, the phones there stop working too. That sounds scary, but cloud systems have a big advantage here: since the system lives in the cloud, calls can be set to forward to cell phones or a backup number, and anyone with the mobile app can keep answering. Some businesses also keep their router and network gear on a small battery backup (UPS).

Common myths

• "VoIP sounds worse than a landline." On a good connection, VoIP calls often sound as good as or better than a landline, especially between VoIP users with HD voice.
• "I'll have to change my number." In most cases you can port your existing numbers. See our guide to switching providers without losing your number.
• "It's complicated to set up." It can be, if your provider hands you an admin portal and leaves you to figure it out. It doesn't have to be.

Questions to ask a VoIP provider

• Is the price per user, and what's included on each plan?
• Who sets up the system: me, or you?
• How do number porting and 911 registration work?
• Are there contracts, setup fees, or extra taxes and fees on top of the listed price?
• When I call for help, who do I talk to?