Interactive Voice Response (IVR) Explained for Business Owners

December 2, 2023 14 min read

Yaniv Masjedi

Yaniv Masjedi

What Is Interactive Voice Response (IVR) & How Do Businesses Use It?

When it comes to making and receiving calls, it’s very straightforward. You dial a number, choose your option from a menu, and get through to the right person.

What happens behind the scenes is called an interactive voice response, often shortened to IVR.

It’s what powers “press 1 for sales; press 2 for support” and so on.

It’s a relatively simple technology that helps customers get through to the best person to help with their queries.

What Is IVR?

An interactive voice response (IVR) is a phone system feature that helps callers navigate to their desired destination through preset menu options.

By choosing the right option, callers get matched with the respective department, individual, or queue.

Inside an IVR, you can configure special rules for who picks up each call based on skills, call volume, or period of time.

How an IVR Works in 6 Steps

1. Caller interaction

The first step in an IVR is someone making a call. A customer dials your number and gets connected to the IVR system.

They’re greeted with a welcome message and presented with a series of options. This menu can be one or several layers deep.

How a call moves through an IVR

For example, you could offer:

  1. Sales.
  2. Support.
  3. Accounts.

But you could also offer submenus inside each of those options. So, when someone presses 3 for accounts, they get a second menu. 

This could include:

  1. Make a payment.
  2. Query an invoice.
  3. Request a copy of an invoice.

The option pressed by the caller on their keypad routes the call to the relevant department.

2. Input recognition

The option your caller chooses is recognized by the press of a button on a touch-tone keypad. This technology is called dual-tone multi-frequency signaling (DTMF). 

Your IVR interprets option 3 as your caller wanting to speak to accounts and routes the call accordingly.

Another method of input is for callers to speak their options. Some IVRs support speech recognition (voice recognition technology). Here, callers can either say the number, department name, or reason for calling. 

Your IVR recognizes this speech input and routes the call to the right individual or team.

With a modern IVR, such as an intelligent virtual assistant (IVA), you can respond to customers using artificial intelligence and natural language processing.

3. Call routing and queuing

When an option gets selected, the IVR routes the call to the individual, department, queue, or message you’ve configured in your IVR application.

Any of the following could be on the other end of an option:

  • Individual: A single person assigned due to skillset, experience, or timing.
  • Department: A group of agents dealing with high call volumes for a specific issue.
  • Queue: Comfort messages and hold music played when agents are busy.
  • Message: Automated recordings to answer self-service FAQs (such as opening times).

In some queues, you might want to offer a callback option. Here, the caller can opt to leave the call but keep their position in the queue to receive a callback. 

An example call flow to build different user actions in Nextiva
An example call flow to build different user actions with Nextiva

When it’s their turn, your call center software triggers an outbound call. The caller carries on with their day without the need for long wait times.

4a. Information retrieval

On the back end of your IVR, you can integrate into databases and lines of business systems so you can retrieve information without the need for human input. 

This saves customers from waiting for a live agent to become available and frees up agents for inbound calls that need human interaction. By looking up information such as account balances and opening times, your IVR conveys this information using pre-recorded messages.

4b. Self-service transactions

As well as retrieving information, customers can use your IVR to complete simple transactions, such as making bill payments and updating their account information.

Without the need for call center agents, customers can choose the relevant option to make a payment, enter their unique identifier using their keypad, and enter their card details to complete the transaction in a PCI-compliant manner.

If something goes wrong or your customer needs help, they can exit the payment menu and get connected to an agent.

5. Error handling and escalation

You can’t expect customers to navigate your IVR correctly every single time. They’re calling because there’s an issue they want to resolve quickly. 

If a caller makes an error or misses an option, you can enable options to help them:

  • Press 9 to repeat the menu.
  • Repeat the menu automatically if no option gets selected.
  • Press # to speak to an agent.

If a customer gets stuck in a self-service option, you can enable your IVR to automatically escalate the call to a human agent.

Example call flow to direct calls to human agents

6. Analytics and reporting

As each interaction (self-service or human) gets tracked on the back end, your IVR becomes a source of data for behavior and call volumes.

You can use this data to see how well your IVR is performing. For example, if callers choose self-service options but always need human assistance, you need to work on your menu options, messages, and processes.

You can also see which options get selected the most and reorder your IVR menu to present the most common options first, making the call faster for the majority of your customers.

Related: What Is ANI? Here’s How Automatic Number Identification Works In a Call Center

What Are the Benefits of an IVR?

When thinking about the benefits of an IVR system, it’s important to consider not only the benefits to your business but also the benefits to your customers. 

Top IVR benefits for businesses

Top IVR benefits for consumers

  • Convenience: Allows customers to get information or complete transactions without the need to speak to an agent. Offers services outside of normal business hours, accommodating different schedules.
  • Faster service: Reduces time spent on hold by directing callers to the right information or department quickly. Provides immediate responses to common questions.
  • Perfect for self-service: Gives customers control over their interactions, allowing them to solve problems independently. Includes options to perform tasks such as bill payments, account inquiries, and appointment scheduling.
  • Personalized support: Delivers personalized experiences by integrating with CRMs to recognize repeat callers and tailor services. Offers personalized greetings or information based on the caller’s history. 
  • Multilingual support: Improves understanding and comfort for customers who prefer to communicate in their native language.

Challenges To Overcome When Using an IVR (And Solutions)

Team morale

IVR systems play a key role in raising agent performance and boosting their morale. Instead of aiming to replace agents, IVR technology is designed to enhance the overall call center experience for agents. By efficiently handling simpler customer queries, IVR systems effectively reduce the number of calls agents need to handle, allowing them to focus on more complex and specialized tasks.

Virtual agents help relieve your team from handling of repetitive and boring requests. This way, they can spend more time delivering personalized customer care resulting in accelerated business growth and customer satisfaction.

Overly complex navigation

Have you ever called a business, listened to all the options, and had no idea which one to press?

If your IVR menu is too long, unclear, or results in a confusing user experience, it can lead to hang-ups, unhappy customers, and failure to renew.

💡SOLUTION: Simplify call flow navigation.

When creating your call flow, opt for the most direct route. If there’s a quicker way to get callers to their destination, enable it. The best call flow is the one with the fewest steps. But don’t let that be your only criterion. 

Think about the entire experience. Simply connecting the caller to a call center agent won’t aid first contact resolution. Work out the best way to satisfy each type of query in your business in the most efficient manner. Then design your call flow accordingly.

Once live, it’s important to regularly review your IVR using the data and analytics available in your contact center software. 

📖 Read More: Managing Call Flows in Nextiva

Here are the basics to set up:

  • Opening hours.
  • Welcome message.
  • Numeric menu options.
  • Destination of each option.

If you’re a small business, fewer menu options are better. Your IVR will likely be one layer (the term for the number of menus you offer callers).

This could be as simple as: Press 1 for sales, Press 2 for support, or Press 3 for accounts.

In your admin portal, configure each option to route to the relevant person or team.

In larger businesses or those with high call volumes, it’s common to have submenus. When a caller chooses option 1 for sales, further menus follow, usually with types of sales teams, such as account management, renewals, or order progress.

If the agent or team can’t be reached, you can configure your call flow to overflow to another team, wait until someone is available, or go to voicemail.

📖 Read more: Creating a Phone Menu in Nextiva

Impersonal customer service

Talking to a recorded message doesn’t feel personal. It lacks the human touch. 

That lack of human touch can lead to dissatisfaction, especially when queries are complex or need empathy.

💡SOLUTION: Provide escalation options.

On your IVR, include an option to speak to a human agent. Treat this as the escape route for customers who are in urgent need of help or have become frustrated with your menu options.

If your IVR has the capability, include an option for the caller to say, “Speak to an agent” so they don’t have to wait for the option to get read aloud.

Excessive wait times

When call routing is created without your customer’s best interests in mind, it can extend the time taken to connect to an agent. If your customers are fed up with waiting by the time your call center agent says hello, the call gets off on the wrong foot.

💡SOLUTION: Improve call flows using data and enable Q-for-Me callbacks.

Finding the root cause of your wait times means you can remedy them rather than firefight them. Review your analytics module to understand where bottlenecks are occurring.

Track the performance of your options in terms of most pressed, average hold time, and success rate. When you have the data, investigate what changes can be made and implement them incrementally. 

Key metrics to track call center perfromance
Key IVR metrics to track

If you make a major change, it’s good practice to announce your options have changed at the top of the call in your welcome message. Frequent callers may know which option they need and skip listening to the menu.

Which Types of Businesses Use an IVR?

There are a lot of different types of businesses, from SMBs to large enterprises, that leverage IVR technology. Here are a few of the many use cases for IVRs:

Financial institutions

Banks and credit unions use IVRs for account inquiries, transactions, and card activation services.

When you receive a new card, for example, you don’t need to speak to a human. Instead, you call the number on your card, press 3 to activate your card, enter your card information, and your card gets activated.

If you call Bank Of America, you’re asked to enter your unique identifier (card or account number) before being offered menu options. This allows them to check the status of your account and offer a more personalized experience.

Rather than running through options designed for new customers, you can get your account balance, arrange an overdraft, or make a change to your existing account right away.


Arranging or rescheduling appointments no longer needs human intervention. When healthcare services use an IVR, you can call and change your appointment without waiting for someone to be available.

Veterans Home Care, for example, uses Nextiva’s IVR to serve its at-risk veterans. As some incoming calls may be urgent and need priority, allowing callers to use self-service options frees up support staff to look after their callers when they’re needed the most.

“We are looking at doubling our business over the next couple of years. That’s a lot of people to talk to. We plan to leverage the IVR technology to prioritize where we spend our time and who we talk to.”

David Laiderman
Veterans Home Care Vice-President

Retail and e-commerce

When you’re waiting for a delivery, you want the fastest way to check on its progress. Instead of waiting for an agent to become available, retail outlets use IVR software to provide self-service status updates and returns processing.

E-commerce companies such as Amazon and ASOS use IVR platforms to route customer escalations that can’t be resolved using self-service or live chat.

If you’ve been given a special number to call, you can choose option 1 for an update on a case, option 2 to raise a new case, or option 3 for *anything else*.

This filtering helps customers experiencing a delay or faulty item get through to the most appropriate support team on the first attempt.

Travel and hospitality

Businesses such as airlines, hotels, and car rental agencies offer booking, cancellation, and customer service via an IVR. 

With so many possible reasons to call (new booking, amend, cancel, refund, delay, etc.), qualifying why someone is calling helps customers get through to the right department efficiently.

If your flight gets delayed and you need to inform the car rental agency at the airport, there’s no benefit in getting through to an agent who can only deal with new bookings. Instead, you choose option 1 on the IVR, which is for “upcoming rentals.”

Hertz’s IVR includes:

IVR Menu ChoiceAction
“Press 1”Upcoming rental
“Press 2”Rental in progress
“Press 3”Completed rentals
“Press 4”Gold Plus rewards
“Press 9”Hear these options again

Government agencies

When callers call into local, state, and federal agencies, they can be greeted with important public announcements, and then request documents and information using self-service options.

If the request can’t be fulfilled by the self-service options, you can exit the automation and get connected to an agent. To qualify which type of agent to connect to, IVR options are in place for callers to choose from.

California State, for example, uses an IVR to offer callers options to:

  • Request a copy of a birth certificate.
  • Request information about High-Speed Rail.
  • Get information about current laws/regulations.
  • Get information about the drought.
  • Find your nearest school.
  • Find your nearest farmer’s market.
  • File for unemployment.
  • Get help with taxes.
  • Register to vote.
  • Apply for disability.
  • Get a fishing license.
  • Apply for health coverage.
  • Get help finding a job.

With so many options, the IVR is crucial for routing callers to the right agents or self-service options. The alternative, a receptionist or random routing, would mean constant transferring of calls, long wait times, and disgruntled callers.

In some cases, it might be best to have a dedicated operator or dispatcher to triage new requests and transfer the caller to the appropriate department.

Transportation and logistics

When you send a shipment, you need to know when it’s going to arrive. Shipping companies provide tracking information and scheduling for pickups and deliveries.

An IVR can look up this information and provide you with up-to-date status without the need for agent involvement. 

Likewise, public transport systems such as buses and trains offer timetables and ticket purchases accessible via an IVR. All you need to do is call, select your journey using the numeric options, and enter your card details for payment.

If the payment fails, you can try again or leave the IVR and get transferred to an agent. 

Jefferson Lines, Texas’ largest bus company, uses an IVR to provide opening times ahead of a menu, then offer options to:

  1. Make a new booking.
  2. Check an existing booking.
  3. Check current timetables.
  4. Apply for a refund.

All options begin with a self-service experience, where you can say where you’re traveling or enter an order number. You can complete your entire experience without speaking to a human or getting help whenever you get stuck.

Improving Your Interactive Voice Response System With Integrations

When you integrate your IVR with other apps and systems, you benefit from information exchange that allows your IVR to be more than just a key press. 

Customer relationship management (CRM)

When connected, you can personalize caller interactions by accessing customer data, including past interactions, preferences, and personal details.

Integrating customer data in Nextiva
Integrating customer data with your IVR solution gives you a unified view of key conversations

For example, an IVR can look up Salesforce records for current orders and recent inquiries, reducing the need for the caller to explain why they’re calling.

Workforce management tools

When your IVR reports on how many callers you have, how many use self-service, and how many escalate to contact center agents, you can optimize agent scheduling.

Using real-world (and real-time) data, you can ensure enough agents are available during peak times, reducing wait times and improving service levels.

Payment processing

By integrating your payment systems with your IVR, you can free up agents and speed up customer payments by offering a self-service option.

Callers enter the amount they wish to pay and their card details, and your payment system receives the key presses as confirmation of payment. No card machines and no humans needed!

Helpdesk and ticketing systems

When customers call for updates on open tickets, reduce agent workload by automating the process. 

Callers can choose the relevant option for an update on their ticket. Your IVR uses their phone number as a unique identifier and pulls through what’s happening with the ticket.

If a customer needs further information, they can choose to get connected to an agent and join the relevant queue (if there is one).

I Need an IVR System; Now What?

Eight in 10 people regularly have negative experiences with customer service. IVRs are the secret weapon to start changing this perception. 

Reducing agent burden while making customer interactions more efficient is a no-brainer for everyone involved in a contact center.

While it takes some time to get your options in the right order, and finding the balance between self-service and human touch can be tricky, there’s no doubt an IVR is a positive move for your business as it grows.

Before choosing an IVR system, make sure you’ve checked off these items:

When you’ve worked out why you need an IVR and what’s going to go into it, it’s time to choose the right technology partner.

Nextiva provides both a basic IVR and an advanced IVR as part of its contact center solution.

Trusted by customers such as Shelby American and Mountains Community Hospital and backed by 99.999% uptime, Nextiva is ranked by Gartner as providing 94% customer satisfaction, which is pretty good considering we connect over 2 billion calls on our network per year.

So, if you’re in need of an IVR solution and want to be in the hands of people who recognize that customers and businesses deserve better, see what Nextiva can do for you.

Get advanced IVR with conversational AI

Queue callback, natural language call steering, appointment scheduling, and more — integrated in one powerful phone system.

Questions & Answers about IVR Systems

Can IVRs integrate with back-office systems to provide updates to callers?

Yes, IVR systems can sync with many popular business applications enabling callers to receive automated updates on their accounts, purchases, or transactions. This back-end integration eliminates the need for callers to speak to an agent, as they can obtain the necessary information directly from the cloud PBX.

Is it possible to take payments over a business phone system?

Integrating IVR systems with payment gateways allows for the processing of automated payments over the phone. Callers can make payments without the need to interact with an agent, making the process more convenient and efficient.

From authentication to PCI compliance, it’s all possible with an advanced IVR. It’s the pinnacle of interactive voice response’s capabilities to collect revenue without occupying the agent’s resources.

Is it easy to set up an IVR?

Traditional phone systems are challenging to set up call routing — not so with Nextiva. Nextiva simplifies the whole IVR setup with a visual call flow designer that lets you intuitively direct calls to your team. More advanced IVRs can be set up with additional planning and fully integrated with your office phone system.

Yaniv Masjedi


Yaniv Masjedi

Yaniv Masjedi is the chief marketing officer at Nextiva, a leading provider of cloud-based unified communication solutions headquartered in Scottsdale, Ariz. He manages the firm's marketing and branding efforts and initiates programs related to brand management, demand generation, advertising, marketing communications, and thought leadership.

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