Here's the short version. Both are VoIP phone systems, which means your calls travel over the internet instead of old copper lines. A hosted (cloud) system suits most small and medium businesses. It costs less to set up, it's quick to get going, and it works well when staff are spread across homes or sites. An on-premise system, where the gear lives in your own office, suits businesses that need full control of their call data, or sit on slow or patchy internet. A hybrid setup mixes the two. The decision comes down to three things: how many sites you run, how many people work remotely, and how reliable your internet is.
Sixfam is a business phone and IT provider in Keysborough, in Melbourne's south-east. We set up both hosted and on-premise systems, so this guide walks through the trade-offs plainly and points you toward the one that fits.
The difference is simply where the phone system lives.
A hosted phone system runs in the cloud. The software sits on a server managed by your provider or a data centre, and you reach it over the internet. Hosted is also called cloud. The two words mean the same thing here.
An on-premise phone system runs on a server that sits in your own building. You own the hardware, and you or your provider look after it.
Both are VoIP phone systems. VoIP stands for voice over internet protocol, which is a long way of saying your calls travel over your internet connection rather than the old phone network. The phones on the desks can look identical. What changes is where the brains of the system sit, and who keeps them running.
A hosted phone system makes sense for most small and medium businesses, especially those with staff working from home or across more than one site.
Hosted tends to be the better choice when:
The trade-off is that a hosted system leans on your internet. If the connection is solid, you'll barely think about it. If it isn't, that's where on-premise comes in.
An on-premise phone system is the better choice when you need full control of the system, or your internet can't be relied on.
It tends to suit businesses that:
On-premise isn't the dated option people sometimes assume. For the right business, keeping the system in-house is a deliberate, sensible call. It just asks more of you in setup cost and day-to-day management.
A hybrid setup combines an on-site system with cloud features, giving you a mix of both.
It's a common middle ground. A business might keep a core system on-premise for control and reliability, while adding cloud features like mobile apps or remote logins. Hybrid also suits a staged move: you keep what works on-site today and shift to the cloud in steps, rather than all at once. If you're not ready to commit fully either way, hybrid buys you time.
The fastest way to know where you stand is to test it, not assume it. Pick a quiet moment and unplug the internet at your router for two minutes. Watch what happens to an incoming call to your main number. If it reaches a mobile or a voicemail, you have some cover. If it rings out into silence, you do not.
There is one question worth asking your current provider too: “If my internet drops right now, where does a call to my main number go?” Many businesses assume they have failover when all they have is a number that rings out. The answer to that one question tells you in a sentence.
If you would rather not guess, Sixfam can run a continuity check on your current setup: what diverts, what does not, and how long until a call reaches a real person. Call 03 9200 2800 to book one.
| Setup | Hosted (cloud) | On-premise | Hybrid |
|---|---|---|---|
| Upfront cost | Low, no server to buy | Higher, you buy the hardware | Medium |
| Monthly cost | Predictable monthly fee | Lower ongoing, plus upkeep | A mix of both |
| Who manages it | Your provider | You or your IT team | Shared |
| Remote working | Built in | Possible, needs more setup | Good |
| Internet dependence | High | Low, runs on your network | Medium |
| Control of data | Held by your provider | Held on your site | Split |
| Best suited to | Small to medium businesses, remote teams | Sites needing control or with poor internet | Businesses migrating or wanting both |
The three options differ on every row, which is why the right answer depends on your business, not on which one is best in general.
Use this as a quick guide:
Internet reliability is the factor where location changes the answer. Take a business with its head office in Dandenong and a second site in Shepparton, up in the Goulburn Valley. The Dandenong office has solid NBN, so hosted works fine there. The Shepparton site sits on a patchier regional connection that slows or drops in bad weather. For that site, an on-premise system, or a hosted one with a strong failover plan (a backup that switches your calls to mobile or another line when the internet goes down), keeps the phones answering when the connection doesn't.
The platform matters too, not just where it lives. 3CX is a common choice that runs hosted or on-premise, so the software you pick doesn't lock you into one model. Sixfam is a 3CX Platinum Partner, though the right platform still depends on your needs.
If you lean toward on-premise, local support matters more than it does with a cloud system. When something in your comms room plays up, you want a technician who can come to the office, not just open a remote ticket. Ask any provider whether they have people who visit sites, and how far they'll travel. Sixfam has run business phone systems for more than 15 years across Melbourne and regional Victoria, with technicians who can attend on site.
You can settle most of this decision in ten minutes with a pen and paper.
Write down three things: how many sites you have, how many of your people work away from the main office, and how reliable the internet is at each location. If you're mostly in one place on good internet with a remote-friendly team, hosted is likely your answer. If you have a site on shaky regional internet, or rules about where your data lives, on-premise or a strong hybrid deserves a closer look.
One more thing worth checking before you sign anything: contract length. Some providers tie you into multi-year deals that are hard to leave if your needs change. Ask for monthly terms with no lock-in. Sixfam bills monthly and doesn't use lock-in contracts.
If you'd rather not work it out alone, talk it through with someone who sets up both kinds of system. Call Sixfam on 03 9200 2800 and we'll look at your sites, your team and your internet, then recommend the setup that fits.
For most small businesses, a hosted phone system is the better fit. It avoids a large upfront cost, it's quick to set up, and your provider handles the updates and maintenance. On-premise becomes worth considering once you need full control of your data or your internet can't be relied on.
No. VoIP is the technology that carries your calls over the internet, while hosted describes where the phone system lives. Both hosted and on-premise systems use VoIP. The difference is whether the system runs in the cloud or on a server in your office.
Yes. Most businesses can move from an on-premise system to a hosted one when they're ready, often keeping the same numbers and desk phones. A staged or hybrid move is common, so you don't have to switch everything in one go.
Yes. A hosted phone system runs over your internet connection, so a stable connection matters. If your internet is patchy, you'll want a failover plan or an on-premise system. Our guide to keeping calls running when the internet drops explains how failover works.
Not by default. On-premise keeps your call data on your own site, which some sectors require. But a well-run hosted system is encrypted and looked after by people who patch it regularly, which many small businesses can't match in-house. The safer option is the one that's set up and maintained properly.
It depends on the timeframe. Hosted costs less to set up and spreads the cost into a monthly fee. On-premise can cost less over several years if you already have the IT resources to run it, but you pay more at the start. For a full cost breakdown, see our guide to what a business phone system costs.
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