How Does VoIP Work: A Beginner’s Guide

Voice over Internet Protocol (VoIP) phone systems are game-changers for businesses looking to streamline their company phone call engagements and save money. Here’s how they’re getting the job done.

The Voice over Internet Protocol (VoIP) market is growing by leaps and bounds -- and for good reason.

Case in point: The VoIP market has risen from 1 billion mobile users in 2017 to an estimated 3 billion users in 2021, with an expected revenue of $194.5 billion by 2024, up from $14 billion in 2019.

Those are impressive numbers for a technology market that was introduced in the 1990s and has grown in parallel with the internet, which also was introduced to global users in the 1990s and is dominant today.

Seamlessly merging the telephone with the internet and making both work efficiently and cost-effectively has fueled demand for VoIP connection, as businesses look for less expensive communication strategies when engaging with customers, business partners, and employees without losing any performance value.

How does VoIP phone over internet work and what does it bring to the table for cost- and performance-minded companies? Here’s a primer.

What is VoIP and how does it work?

VoIP is a telecommunications technology system that delivers real-time voice communications and multimedia content (via video) over internet protocol (IP) networks, like the internet.

With VoIP, data is transmitted digitally via IP networks. That’s a departure from standard analog telephone lines used in legacy phone systems.

Structurally, VoIP takes analog-based phone calls and converts the message into data packets for internet phone calls, with a VoIP server used to connect telephone calls to outside phone networks. The technology then delivers those packets of data over either a public or private internet, just like email messages are transmitted.

VoIP allows end users to call any type of phone, including landline and mobile phones, as well as computer-based phones (where the call participant uses headphones and speakers to make and take phone calls.)

Using VoIP is highly user-friendly. All an end user needs is a computer or other digital communications device (like a mobile phone), an internet connection, and VoIP software applications.

The technology can also be used with VoIP-based telephones that plug in directly to devices like mobile phones or computers, via routers, wireless technologies, or Ethernet. With what VoIP providers call “unified communication,” system users can engage other workers, customers, or vendors with a single communication platform that includes voice, video, web conferencing, and text messaging.

Business users can leverage VoIP to make phone calls in the workplace or away from the office and in getting a business phone number. Wireless VoIP systems also enable users to store and access customer data wherever they place the call -- from the office, from a warehouse, or even in different countries.

Technology providers do advise companies who deploy VoIP phone systems to place their system on a private IP network, mainly for security and performance reasons.

Benefits of VoIP technology

For businesses of all types, VoIP offers abundant benefits -- mostly in the areas of cost and performance.

Less expensive to use

While figures vary from company to company based on unique needs, businesses can expect to save 40%-60% by switching from legacy/landline systems to internet-based phone systems.

Companies that use VoIP don’t have to shell out heavy upfront costs for systems and hardware. All a business needs is a reliable internet connection with robust switches and routers and it’s good to go. Some VoIP providers will also provide softphone apps for free when signing up, so companies don’t have to invest in physical desk telephones, either.

More efficient to manage

With VoIP phone systems, it’s easy for system administrators to manage the entire phone system. For example, adding extensions to the company’s phone system only requires a simple software adjustment, with no complicated rewiring of new phones to operate on the existing system.

Mobile benefits

With more companies operating remotely, VoIP mobile puts the power of a company’s entire phone systems in an employee’s hands, via mobile phone. VoIP adaptive software features make it easy for staffers to use their phones at home, on the road, or even traveling in foreign countries.

The technology also allows for call routing from the home office to a team member’s mobile phone hundreds of miles away.

Helpful features

Company employees accustomed to having a bundle of features on their landline phone systems won’t miss a thing when using VoIP phone systems.

If anything, users will gain more features that make their devices easier to use and improve the customer experience. Name directories, call records, video and audio messaging, voicemail files, digital address books, and seamless integration with internet browsers to easily make and receive calls are some of the helpful features users get when using VoIP phone systems.

Strong system integration

With VoIP phone systems, information technology managers can easily integrate company phones with other company systems, like help desks, call centers, and customer relationship management (CRM) applications.

How to get VoIP set up at your company

While the benefits of using VoIP phone systems are abundant for businesses big and small, companies should plan ahead before installing an internet-based phone system.

1. Know what you have on hand

A full-scale, company-wide phone system assessment is strongly recommended before going all-in on VoIP.

That assessment should include a review of current network capabilities and how best to approach an upgrade for a company’s current telecom system. Ask your potential VoIP provider or an outside consultant to conduct a call volume review of your current system and probe potential weak spots and problems before they arise after installation of an internet phone system.

2. Know your staff technology capabilities

It’s also a good idea to make sure your current information technology staff is up to the task of switching over to a VoIP platform. While it is easier to manage an internet-based phone network, company decision-makers should have a handle on what level of technical support will be required to manage a new VoIP phone system.

3. Choose the right vendor for you

Start that vetting process by deciding what kind of VoIP vendor relationship you want. That primarily comes down to three options:

• A vendor that hosts a company’s entire phone system: Here, the VoIP vendor owns and provides the network system, while the company pays or leases for the actual phones. The company will also pay a subscription price to the vendor for VoIP services.
• A system that is bought and managed by the company internally: When a business manages its own VoIP system, that system’s equipment is kept on-site and the business is responsible for maintenance and repairs on any system components. The business will also likely pay for VoIP service, as well as any upfront costs in installing an internet-based phone system.
• A managed VoIP system that is purchased and held by the business but managed by a third-party technology provider: In this scenario, the company owns the entire internal phone system and the third-party provider is paid a fee to manage the company’s VoIP network.

The takeaway on VoIP telephone systems

VoIP phone systems give businesses what they want from a communications system -- efficiency, performance, value, and cost savings, all wrapped up in a single package.

With large and cumbersome legacy landline systems on the way out, expect VoIP phone systems to expand globally over the next decade -- especially as remote workforces require greater agility from business phone networks.