What Is a Virtual Phone System and How Does It Work?

July 10, 2024 13 min read

Alina Benny

Alina Benny

Virtual phone system

As employers move to embrace remote work, one of the biggest obstacles is their business phone system. A virtual phone system gives you much more functionality compared to landlines.

Old-fashioned phone systems just can’t provide the functionality needed today. Team members aren’t in the office to take calls or necessarily have access to a desk phone.

The shift to remote work means that businesses need a virtual phone service to free their team from the limits of a physical landline.

So, can you run your business from a cloud-based phone system? Is it hard to set up? What features should I look for? Does it work for small businesses? We’ll cover all these and more in this comprehensive guide.

What Is a Virtual Phone System?

A virtual phone system is a communication solution that allows team members to make and receive calls through the internet rather than through a physical landline. A virtual phone system lets users communicate on a desktop app, mobile phone, or desk phone, all from a single business phone number.

The biggest reason companies move their phone system to the cloud is to take advantage of the advanced features only a virtual phone system can provide. It enables companies to enhance productivity and grow their team.

Simply put, a virtual phone system is a cost-effective way to keep your entire team connected. New research suggests that nearly 40% of companies have remote employees. You’ll need a phone system that works in and out of the office.

How Does a Virtual Phone System Work?

Virtual Phone Systems work on IP phones, computers, and smartphones.
A virtual phone system works across many devices.

Unlike traditional phone systems that only work in one location, your virtual phone system can use your existing hardware to work anywhere. You can make and receive phone calls if you have an internet connection.

A virtual phone system connects calls between toll-free and local phone numbers and users. Before your phone rings, a lot of technological magic happens. But the most important thing to remember is that your company doesn’t have to mess with the technology — the virtual phone system provider does that for you!

These virtual phone systems function by managing all the telecom infrastructure and relationships with the Public Switched Telephone Network, better known as PSTN. That’s just for connectivity.

Your virtual phone system works using Voice over Internet Protocol (VoIP), meaning the phone connection happens over the internet connection rather than hard-wired phone lines. It converts your phone calls from analog sound with VoIP codecs to achieve superior call quality and exists at the core of a virtual phone system — no matter what phone number you call. 

Typical virtual phone system setup for an employee working from home.
Employees can access the cloud-based phone system from their home network.

VoIP providers set up a redundant network of data centers for optimal performance. In the event of severe weather, communications automatically fail over to other servers without missing a beat.

Virtual phone systems don’t terminate at your building. Instead, it exists on the internet. You can easily forward calls from your office phone to your cell phone. You can work from a coffee shop and take calls on your computer. If you’re taking time off, you can route calls to another colleague or even receive your voicemails in an email.

On the front end, users get a ton of new capabilities to work and collaborate effectively. From the moment an inbound call arrives, you can route it to an auto-attendant, which is sometimes called a phone tree.

They can also exchange SMS text messages with customers from the same platform as their business phone service.

Landlines work much differently. You’re confined to wherever the telephone company installs it. Connectivity can only be established over wired connections. You also can’t ignore the increasing tolls and monthly fees. VoIP lets you place calls anywhere you have internet access — it works well with a strong Wi-Fi signal.

Virtual phone systems let you and your team take advantage of increased reliability, better call quality, and a wealth of advanced features to work better.

How Does a Virtual Phone System Differ From a PBX?

You might use a Private Branch Exchange (PBX) setup if you’re not already using a VoIP phone service. It’s not fancy, but it works.

A Private Branch Exchange (PBX)  is a traditional phone system that uses analog signals. Virtual phone systems convert analog signals into digital ones and transmit them through the internet. They both provide phone functionality but in different ways.

The key difference between a PBX and a virtual phone system is how calls are handled across the Public-Switched Telephone Network. Virtual phone systems cost much less and have much more scalability than traditional PBX.

Learn more in our detailed PBX and VoIP comparison guide. It breaks it all down for you.

Below is a breakdown of the key differences between a virtual phone system and a PBX.

FunctionPrivate Branch ExchangeVirtual Phone System
Interoffice calling
PSTN calling
Hardware requirements
Ongoing maintenance
TransportAnalog, ISDN, or PRIInternet (100kbps per line)
Work-from-home ready
Ease of setup★★★★★
Voicemail transcription
Text messaging
Cost per user$$$$$

Benefits of Using a Virtual Phone System

Not all business phone systems are made equal. You need more than standard phone service. Here’s why small businesses and enterprises prefer a virtual phone service.

At a glance:

1. Easy setup

One of the top advantages of a virtual phone system is that it’s easy to set up and use.

Traditional phone systems are difficult to configure. You need to wait for an installer to run wires and cut holes all around the office. During this time, your team won’t be able to make or receive phone calls. Can you afford to halt business?

A virtual phone system works wherever you have a high-speed internet connection. Since phone hardware is optional, you can get started right away. And when you get your VoIP phones, all you need to do is plug them in. That’s it.

Nextiva’s VoIP phone service is ideal for remote employees and in the office. You can set it up yourself without the need for IT — it’s that easy.

2. Lower costs

All too often, businesses pay for solutions and don’t use them to the fullest. This results in a lot of waste. A virtual phone system lets you select the right combination of features and lines that work for you.

Whether you need a complete office phone system or a small business phone plan, you get the most value by going virtual.

Nextiva’s virtual phone system directly replaces several business apps from day one. Don’t forget that you’ll save up to 65% compared to traditional phone systems. Built-in features save you even more. You will lower your costs with these premium features included:

All of these features make a virtual phone system a superb option for every business. It’s a budget-friendly option for small businesses. Plus, it contains every calling feature that enterprises have enjoyed for years.

3. On-demand phone numbers

If you have a remote team, it’s likely their phone numbers all have different area codes and inconsistent prefixes, making communication a hurdle. If it’s a challenge for you, just imagine how it is for your customers.

Virtual phone systems give your team a professional identity to level up their conversations. You can use a toll-free number, pick out a local number or a vanity number, or even have no direct-dial numbers altogether. It’s all up to you.

If you need to set up regionally focused phone numbers, you can. It’s a great way to make your calling campaigns more successful.

No matter the use case, your team can always use the preferred phone number. The advanced call routing can direct calls to their mobile device, voicemail, or another person if desired. It’s like a handy contact center for your business.

Privacy is central to a virtual phone system. Your employees can conceal their caller ID to make and receive business calls without revealing cell phone numbers. Plus, it encrypts phone calls for maximum VoIP security.

4. Flexible device options

Wired phone systems require your team to take calls through a desk phone. That’s it. With Voice over IP, your team can communicate from a variety of devices.

Virtual phone systems adopt open, universal standards. This interoperability means you can take business calls from any IP-based device rather than only a desk phone. Example devices include:

These standards let you mix and match the right hardware for your individual. An executive has different needs than a support rep. These devices rely on the Session Initiation Protocol (SIP) for reliable business calling.

The best part? Our research has shown that 59% of business professionals use at least three devices at work. You don’t need to purchase any extra equipment. It works with the communications devices you already use.

Stat: 59% of professionals use at least three devices at work.

5. Intelligent call routing

Handle incoming phone calls with ease and direct them to the right people. If your team is only accessible by cell phone, you already know how frustrating it is to transfer business calls. Virtual phone service providers eliminate this hassle.

First, you can direct business phone calls to your main number through an auto attendant. This function lets callers choose the department or person they wish to reach. Every business should have this set up.

Second, you can set up automatic call forwarding based on business hours. If you have an answering service, you can adjust this on your schedule from a friendly and straightforward interface.

Third, your team is in control of their availability. Users can adjust their forwarding or send callers to voicemail. This fine-grained control over phone service increases customer satisfaction and sales.

For steeper business needs, look no further than a cloud-based call center. It lets you leverage advanced features like skills-based routing, artificial intelligence, call queuing, and interactive voice response (IVR) to handle any call volume. It’s all virtual, too!

Screenshot showing Nextiva's Cloud-Based Call Center

6. Robust analytics and reporting

What days of the week are the busiest? What does call volume look like over the holidays? Do we need to hire more agents? These questions can only be answered with real-time call analytics and reporting.

These dashboards can help you manage the volume of calls and tie them to business results. Historically, only enterprise-sized organizations had these capabilities. Now, small businesses can use analytics to scale.

Virtual phone systems make this data easy and accessible. It’s instrumental if you’re managing call center agents. You can enhance the team’s one-on-one performance reviews. You don’t need to manually keep track of their time or micromanage their time on the phones.

And, the best part: You can view real-time reports and call analytics through an internet connection on any device. You and your team will be on the same page.

Nextiva voice analytics

7. Increased team collaboration

This is where the rubber meets the road for remote teams. Your remote team needs to answer questions promptly. You can’t let projects be held up due to communication breakdowns.

Instead of juggling multiple messaging and communication apps, you have one. Instead of dialing a colleague, you can send them a quick text message. It’s less formal than an email and faster, too. Plus, it doesn’t ping everyone else in your project management app.

Audio and video conferencing are a staple of any virtual phone system. You can bring your team together in one click and provide the dial-in for those without a strong VoIP connection. For more productivity gains, centralize your projects and team collaboration within Nextiva.

It’s not just for your internal team. You can set up a dedicated conference line for your clients so they can get the hands-on engagement they need. These virtual workspaces promote a collaborative approach to business communication.

Communication and collaboration topped the list of challenged while working from home. (Buffer)
Communication and collaboration topped the list of challenges while working from home. (Buffer)

Buyer’s Checklist for Your Next Virtual Phone System

It can be a bit overwhelming to think about upgrading your phone system. It’s easier than you think. Here are our recommendations to help you select the right phone system.

To save you some time, get a personalized quote for business phone service from Nextiva. This detailed price quote helps you be informed to make the right choice.

We already know that a virtual system offers more benefits than landlines. By following this checklist, you can focus on serving customers wherever your team works.

Virtual Phone System FAQs

We’ve answered the most common questions about virtual phone systems below.

What is the best virtual phone system?

Out of nine different virtual phone systems, U.S. News & World Report rated Nextiva #1. Nextiva scored the highest in performance, reliability, range of features, and customer support. Also, Nextiva is the best-rated phone system listed on GetVoIP from over 2,900 customer reviews.

Check out more reviews about Nextiva. It’s no surprise it was rated the best.

How do I set up a virtual phone system?

You can set up a virtual phone system in just four steps:

For more information, read our guide to setting up your virtual phone service.

Which phone numbers can I use on a virtual phone system?

A virtual phone system supports any assigned phone numbers you own. To use your existing business phone number, you will need to transfer it through a process known as porting. Depending on your phone service provider, it takes approximately 1-4 weeks.

You can also pick out a virtual phone number when adding or changing phone extensions. Likewise, you can use or drop these phone numbers if you no longer want them.

You can also use toll-free numbers with a virtual phone system, but transferring them takes a little bit longer. Check with your VoIP provider for porting requirements.

How much does a virtual phone system cost?

Depending on the features, a virtual phone system costs between $17 to $80 monthly per user. Based on their capabilities, VoIP desk phones cost between $75 and $350 each.

Unlike traditional phone systems, there are no service contracts, IT costs, weather outages, and obsolete hardware to maintain. Companies can save up to 65% on their business communication costs.

Is there a virtual phone system for small businesses?

Virtual phone systems are particularly well-suited for small business owners due to their flexibility, easy setup, cost-effectiveness, and scalability.

Small business virtual phone systems like Nextiva offer many advanced features of enterprise-grade phone systems (unlimited calling, auto-attendants, call routing, voicemail-to-email, and more) without expensive hardware or complex setups.

Employees can use the virtual business phone system from anywhere using a mobile or desktop app with an internet connection, supporting remote work and multiple office locations.

What are the top features of a virtual phone system?

There are hundreds of features in a virtual phone system, but here are the top features for business users:

Check out the list of 40+ VoIP features that you should know.

Can a virtual phone system be used at home?

A virtual phone system can be used from home and in the office without any hardware to set up. All you need is an internet connection to make and receive phone calls from your business line. Almost all cable and DSL connections can support the needs of a modern VoIP phone system.

Virtual phone systems allow remote employees to work anywhere using only their laptop, mobile device, or desk phone. Customers and coworkers won’t notice a difference. Integrate your phone service with your CRM software to boost your productivity and workflow.

Follow our handy guide on how to set up VoIP to see how easy it can be.

Can startups use a virtual phone system?

Early-stage companies stand to benefit the most from a virtual phone system. As you add sales and service roles, you need to make sure your team is accessible and available for team huddles. Startups can add and adjust features to fit their business needs, such as call forwarding, call tracking, and call recording.

Curious about how many phone lines you need? It’s more than you might think.

The Best Virtual Phone System Is Here: Nextiva

Communicate with customers, leads, and co-workers with a virtual phone system.

The way we work has changed. Even when everyone returns to the office, will you really want to return to a limited, obsolete phone system? Not likely.

Your team is ready for you to select a phone system for remote employees. You don’t have time for games or sharing GIFs. You need it to handle incoming calls with the utmost reliability. It also needs to be dead simple for everyone to use.

Nextiva has been ahead of the curve since 2008. It’s why U.S. News rated us the #1 phone system for businesses nationwide. We provide companies with an all-in-one communications platform that grows with them.

Virtual phone system pricing is within reach for practically every business, starting at $17.95. You can now get up and running with a full-featured mobile app. The best virtual phone system is here — it’s NextivaONE.

Choose the right virtual phone system for you. It's free.

Get your business phone, messages, video meetings, contact management and notes–integrated in ONE powerful app. FREE.

Alina Benny


Alina Benny

Alina Benny was the Senior Content SEO Lead at Nextiva. Her B2B marketing career has taken her all over the place — from branding and copywriting to product marketing, SEO, and SaaS content marketing. She also uses her keen eye for great copy, action bias, and search discoverability as a mentor with First Round Capital…

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