Virtual Phone System: What is it? How to Set Up?

Today, the world is running at a rapid pace, and for any business to thrive and succeed, effective communication is an absolute necessity. No matter if you are a big well–established corporation or just a small startup, having a reliable and efficient phone system is essential to connect with clients, customers, and colleagues. Outshining their traditional counterparts, modern-day virtual phone systems have gained immense popularity by catering to businesses of all sizes. On the feature line, these phone systems offer a plethora of options. This blog delves into the top reasons why choosing a virtual business phone system is a wise move for your business along with some basics about these phone systems. 

Let’s get started!

What is a Virtual Phone System?

A hosted or virtual phone system or a hosted VoIP phone system is a cloud-based business phone service, which works via an internet connection. Compared to a traditional business phone system, which requires a hardware PBX system, virtual telephony requires very little hardware. Businesses purchase a local virtual or toll-free number and connect it to the various departments through a virtual PBX system.

Usually, the various departments can be reached through a different extension code. Cloud-based phone systems are now widely used in all business setups irrespective of their size. Even small businesses are going for a cloud PBX system owing to its flexibility. Here are 7 reasons why you should choose a virtual business phone system.

How Does a Virtual Phone System Work?

A hosted VoIP Phone System, also known as a Cloud Phone System, Virtual PBX System, or hosted Phone System, operates through the Internet, unlike the traditional phone systems that work on physical phone lines. Rather than relying on physical hardware and equipment on your premises, a virtual business phone system uses a remote server to manage all your calls and other communication needs.

Different Types of Virtual Phone Systems

Hosted Phone System

The first category is Hosted PBX. This is a type of virtual phone setup that is exclusively handled or managed by a third-party service provider.


  • Setting up and managing a hosted phone system is easy as the service provider is responsible for all maintenance and upgrades
  • These phone systems are more cost-friendly than traditional phone systems because there’s no need for expensive hardware
  • These phone systems are scalable which means a business can easily add or remove users as it grows and changes
  • These phone systems offer advanced telephony features like voicemail-to-email, call recording, and IVR


  • Dependence on the service provider for maintenance and upgrades may lead to downtime
  • May have limited customization options, as the system is managed by the service provider
  • Require high-speed internet connection for better call quality

VoIP Phone System

VoIP, or Voice over Internet Protocol, is a virtual PBX system that makes use of the Internet for calls. VoIP systems are considered pocket-friendly than conventional phone systems and also offer advanced phone features including video conferencing and screen sharing.


  • As calls are made and received over the internet, VoIP phone systems prove to be more pocket-friendly than conventional phone systems
  • With an internet connection, VoIP phone systems can be accessed from anywhere, which makes them an ideal choice when on the go
  • These systems offer high scalability and flexibility which means users can be added or removed as and when needed


  • The call quality depends on the quality of the internet connection
  • Can be more vulnerable to security threats like hacking or malware attacks than traditional phone systems
  • May require additional hardware or equipment, like headsets or routers, to get the most out of the system

Cloud Phone System

Cloud-based virtual PBX systems use cloud technology to manage all communication needs of a business. These systems are scalable which makes them a perfect fit for small to medium-sized businesses that are likely to expand sooner or later.


  • These systems are very much scalable and flexible. According to the need of the business, users can be added or removed
  • There’s no requirement to invest in costly hardware or equipment as everything runs over the internet cloud
  • When it comes to security and reliability, these systems can be completely trusted as data is backed up in multiple locations and is also protected with the latest security algorithms
  • Accessing a cloud phone system is extremely easy – do it anywhere in the world with just an internet connection


  • Depend on the service provider for maintenance and upgrades, which may lead to downtime or service disruptions
  • Reliance on the internet for connectivity can lead to poor call quality or dropped calls in areas with poor internet connectivity
  • May have limited customization options, as the system is managed by the service provider

Key Features of Virtual Phone Systems

Well, there are many virtual business phone systems present out there. Each one of them has their own set of features. So here we are mentioning the most common and popular features of virtual office phone systems that you are likely to find in most phone solutions. Take a look:

Call Routing and Forwarding

Both call routing and forwarding contribute to enhancing the efficiency of communication and customer satisfaction. But how? Let’s discuss:

a. Call Routing

Through intelligent call routing, the hosted phone system ensures that the incoming call is directed to the right destination which could be an agent or a department. This routing is configured according to the specific needs of a business. The criteria to define call routing may involve various parameters such as the caller’s geographic location, IVR choices made by the caller, the extension dialed by the caller, etc. 

Here’s a simple example to understand call routing. If an incoming call arrives during business hours, then it will be directed to a live customer support agent. However, if the call arrives after business hours, then it gets directed to voicemail. 

b. Call Forwarding 

In Call Forwarding, the incoming call is redirected to another phone number or device. This is done to ensure that incoming calls are always answered and important calls are never missed. 

Here’s a simple example of call forwarding. Suppose an agent is not available at his desk when a call arrives then the system can automatically redirect the call to the agent’s mobile phone. 

Virtual Phone Number

A virtual phone number for business is also called a cloud phone number. These phone numbers are not associated with a physical telephone line instead these numbers work over the internet. These phone numbers offer greater mobility and cost-effectiveness and are very easy to set up. Scaling of these numbers is quite easy. This means that a business can add or remove virtual phone numbers as required without any hassle.  

Multilevel IVR

A popular and extremely useful feature of virtual office phone systems is multilevel IVR. Using this feature, a business can create custom menus and IVR prompts to guide the callers throughout the call and provide them with a satisfactory resolution. This could be in the form of patching customer calls to suitable agents according to the selection made by the callers. Additionally, IVRs can also offer self-service options to callers. This means that callers can fetch some basic information such as checking account balance, status of an order, appointment scheduling, etc., using the IVR itself. 

Call Analytics and Reporting

The call reporting and analytics feature of the hosted phone systems allows a business to track and analyze the key metrics related to their inbound and outbound calls. It captures and utilizes different types of data such as call volume, duration of the call, no. of calls, etc. The system uses this data to generate insightful reports which are useful for a business in making decisions that help in improving overall customer service. 

Benefits of Virtual Phone Systems

Cost Savings 

There are various ways through which phone systems for business help businesses in saving money as compared to those traditional phone systems. Here’s a list of examples that illustrate their cost-saving benefit:

a. Lower Infrastructure Cost

Traditional phone systems required a substantial amount of money to be invested initially for physical equipment, phone lines, installation, and human resources. On the other hand, virtual office phone systems operate over the internet cloud which eliminates the need for any hardware. The cost of getting started with a phone system for business is just a fraction as compared to traditional telephony systems. 

b. No Maintenance Hassle 

Ask a company with a traditional phone system setup about their experience to know what a big pain it is. Besides regular maintenance, companies have to bear the cost of repairs and updates as well which adds to their expenses. In contrast, hosted phone systems are hosted by service providers, and all the work related to maintenance, repair, and upgrades is done on their end, which eliminates the burden on the user company. 

c. Mobility and Remote Work Support

Cloud hosted phone systems reduce the costs associated with dedicated desk phones being provided to employees and office space. This is because using these cloud phone systems, employees can make and receive calls using any internet-enabled device. So those on-the-go employees and the work-from-home or remote employees can do their work without any hindrance, saving money for the business. 

d. Scalability Benefits

Cloud phone systems are easily scalable, which means that a business can add or remove phone lines or extensions quite easily. With this, it is ensured that businesses only pay for what they use, thus saving them from unused or unnecessary expenses that typically come with traditional phone setups. 

Professional Image and Branding

Cloud phone systems offer several features and functionalities that help in creating a professional image and enhancing the branding of a business. Take a look:

a. Welcome Greetings & IVR Menu 

A hosted phone system offers Auto-attendant or an IVR i.e. Interactive Voice Response that allows businesses to set up professional greetings for the callers. Also, this system guides the callers by presenting a menu with options, thus helping them to reach or connect with their desired destination. Overall, this feature adds a professional touch to the customers’ calling experiences. 

b. Virtual Phone Numbers 

Local and Toll-Free numbers allow businesses to obtain local phone numbers from different geographies around the world and establish themselves as a reliable and trustworthy brand without making any physical presence. 

c. Business Hours Management 

Cloud phone systems allow businesses to set their working hours and the calls that arrive after these hours are directed to voicemail or an on-call agent. This reinforces professionalism as customers are made aware of the availability of the business. 

d. Call Routing and Forwarding

We have already discussed the feature of call routing and forwarding in detail. Now through routing, calls are directed to the right destination, and with forwarding, it is ensured that every call is being answered and addressed. This certainly portrays a responsive and professional image of the business to the callers. 

Advanced Call Management Features

Office phone systems for business come with a sophisticated set of call management features and functionalities which go way beyond the basic call handing capabilities. Let’s discuss them one by one:

a. Call Queues

This is an excellent feature of modern-day phone systems as it helps in holding all the incoming calls in a queue when agents are busy on other calls. The system keeps the caller engaged by playing pleasant music and announcing their queue position and estimated time in the queue until an agent becomes available to talk. 

b. Voicemail-to-Email

Another amazing feature of cloud phone systems is that they convert voicemail messages into audio files and send them as attachments to the designated email addresses. This means that users can access voicemail messages conveniently from the device of their choice. 

c. Call Recording 

The call-recording capabilities of hosted phone systems offer multiple benefits to businesses. These recordings are interactions between customers and agents and can be used for various purposes such as quality assurance, training, and compliance. 

d. Click to Call 

These are buttons or callback widgets for websites that businesses can apply on their websites, email signatures, and other marketing material so that their prospects and customers can send a request to receive a callback. 

How do I Set Up a Virtual Phone System?

Setting up a virtual/ hosted phone system involves several steps, but the process is generally easy and straightforward. The best part is that one doesn’t need to have extensive technical skills to set up a hosted VoIP phone system. With basic knowledge, you can set up the system. Here are the general steps:

Choosing a Virtual Phone System Provider

Research and compare different hosted phone system providers available in the market to find the one that best fits your business needs and budget. Don’t fall for flashy discounts or unrealistic promises. Instead, look for a solution that offers useful features and has a reliable name in the market.

Selecting a Phone Number

Once you sign up for a cloud-hosted phone system service, just log in to your system and start by selecting a phone number for your cloud PBX system. This can be a new virtual office phone number or a transfer of your existing business number into the system.

Configuring Call Handling and Routing

The next step is to create call-handling instructions for your IVR or auto attendant. This includes customized greetings, creating an IVR menu, etc. Also, determine how calls will be routed, such as forwarding to a specific person or department, etc.

Setting Up Extensions & Voicemail

Add users to your phone system and assign phone numbers along with extensions accordingly. Also, remember to set up your voicemail system so that calls that arrive after business hours are not missed. You can also read our blog on After Hours Business Voicemail Greetings Ideas

Monitor and Adjust

The final step is to monitor the phone system regularly to ensure all functions are working properly. This may include adjusting the phone system time-to-time as per the requirements of the business.

Final Words

Virtual Phone systems stand as valuable assets for businesses of all sizes. The cloud-based nature of these phone systems provides immense value to the users as they can access their phone system from any location with an internet connection. Additionally, virtual office phone systems are equipped with advanced communication and collaboration features that help significantly enhance productivity, and professionalism and offer invaluable insights to the business. At last, we can say that these phone systems are scalable and dependable solutions that foster success in today’s dynamic business landscape.

Also, read – How to Start a Virtual Call Center?

The process of setting up a virtual phone system is quite straightforward and usually depends upon the provider chosen by you. In general, after you select and sign up with a vendor, you can simply configure the phone system by setting up phone numbers, IVR, user extensions, call routing and forwarding, voicemail, etc.

Yes, virtual phone systems do not require any physical hardware, installation, or maintenance work. This saves businesses from significant investment.

You can use virtual phone numbers which are not associated with a physical phone line and work completely over the Internet.

The pricing of a virtual phone system depends upon the provider, however, in general, it can cost you anywhere between 25 USD/Month to 80 USD/Month.

First, you need to choose a virtual phone system provider, then sign up for their service, create an account, set up a virtual phone number, configure call routing and IVR, integrate with other systems, and then test all the functions before starting to make and receive calls.

Note: This post has been updated with the latest information on 21-07-23.

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