How VoIP Works Step by Step: A Complete Guide for 2024

VoIP has quickly become a cornerstone of business communication thanks to the rise of remote work, cost-savings, and efficiency improvements. Today, over 87% of startups use VoIP software for their calls and messaging.

In this article, we’ll explore VoIP in more detail, explaining how it works step by step, how it compares to traditional landlines, and how to choose the best solution for your business.

Key Takeaways:

• Voice over Internet Protocol (VoIP) allows you to make calls over the Internet, cutting down on costs, lowering call rates, and increasing efficiency.
• VoIP works by converting analog inputs into digital packets, which are then sent over the Internet and transformed back into audible sounds.
• Although VoIP is limited in its reliance on stable connections, it still outperforms landlines in most use cases and is the best option for a majority of businesses.

What Is VoIP?

VoIP stands for Voice over Internet Protocol. It is the technology that lets you make calls online with nothing but your personal smart device (phone, tablet, computer) and an Internet connection. This makes VoIP very cost-effective, quick to deploy, easy to use, and customizable with various other digital tools.

How Does VoIP Work Step by Step?

The way VoIP software works can be broken down into several individual steps. Each is crucial for the technology to work correctly. Therefore, it’s important to understand the process to be able to properly troubleshoot it. 

Here’s a step-by-step overview of how VoIP works:

• Receiving Inputs: VoIP systems can use a device’s integrated or external microphone to pick up analog audio signals – in this case, your voice.
  
• Digitization: VoIP software then uses specialized codecs that capture and transform the analog inputs into digital signals to prepare them for transfer.
  
• Packetization: After digitization, VoIP codecs break up the files that would be too large to transfer efficiently into individual, smaller data packets.
  
• Data Transfer: The VoIP system then sends the data packets over the Internet to the receiver’s device, where they are reassembled in the correct order.
  
• Retrieval: The receiver’s device transforms your digitized voice back into analog outputs, which are played through the speakers/headphones as audible sound.
  
• Repetition: This process repeats on both sides of the line in real-time as you and your partner communicate, only ending after the call has been finished

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The Benefits & Disadvantages of VoIP

4 Benefits of VoIP

• Save Money on International Calling:  
  VoIP allows you to avoid expensive long-distance calling charges with automation and features like International numbers and save both your own and customers’ money.
  
• Embrace Freedom With a Remote-friendly Solution:
  VoIP lets you break down geographical barriers and receive calls from anywhere with an internet connection. This possibility is invaluable for remote teams.
  
• Adjust Your Calling Software As You Grow:
  VoIP adapts to your needs, no matter the size. The highly scalable and adjustable software helps you grow seamlessly both in terms of teams and tools.
  
• Diversify Your Communication Approach:
  VoIP facilitates unified communications across various channels, such as voice, video, messaging, and conferencing, which improves collaboration and efficiency.

3 Disadvantages of VoIP

• A Need for Reliable Internet Connection:
  VoIP relies on a stable internet connection, so you may experience delays, packet loss, and reduced call quality if your internet connection falters.
  
• Location Tracking May Be Limited:
  VoIP technology may fail to provide accurate location information to emergency services due to not being able to transmit accurate geographic data.
  
• Potential Security Threats:
  Depending on the provider, VoIP can be vulnerable to security threats and cyberattacks like hacking, eavesdropping, and other malicious activities.

Types of VoIP Technologies & How They Work

Although various types of VoIP technologies may seem indistinguishable to a layman, there are actually several differences that set them apart. Each has its own unique VoIP set-up process, along with pros and cons that make it perfect for specific use cases. 

Hosted VoIP for Business

Hosted VoIP is a cloud-based service where the VoIP provider manages all the infrastructure required for VoIP communication. Businesses subscribe to this service, and the provider handles the VoIP servers’ maintenance, upgrades, and management.

How does hosted VoIP work?

1. Setup: Businesses connect their phones or VoIP devices to the internet.
   
2. Service Provider: The VoIP provider hosts the servers and services in their data centers.
   
3. Call Management: When a user makes a call, the call is routed through the provider’s cloud infrastructure.
   
4. Features: Providers often offer advanced features like auto attendants, call forwarding, voicemail, and call analytics.

Advantages:

• Low upfront costs since there is no need for on-premises PBX hardware.
• Scalability to add or remove lines as needed.
• Regular updates and maintenance are handled by the provider.

Disadvantages:

• Dependency on the internet connection for quality and reliability.
• Less control over the system since it is managed by an external provider.

SIP Trunking for PBX Phone Systems

SIP (Session Initiation Protocol) trunking is a service that lets businesses connect their on-premises Private Branch Exchange (PBX) systems to the Internet. It replaces traditional phone lines with an internet-based connection.

How does SIP trunking VoIP work?

1. Setup: Businesses need an IP-enabled PBX or a gateway to connect their PBX to the internet.
   
2. SIP Trunks: The SIP trunk provider establishes a virtual connection between the business’s PBX and the public switched telephone network (PSTN).
   
3. Call Management: Calls are routed through the internet to the SIP trunk provider, who then connects them to the PSTN or directly to other VoIP endpoints.
   
4. Features: Can leverage existing PBX features and often includes additional VoIP features like call recording, disaster recovery, and unified communications.

Advantages:

• Utilizes existing PBX infrastructure, reducing the need for significant new investments.
• Potential cost savings on phone bills compared to traditional phone lines.
• Greater control over the telephony system.

Disadvantages:

• Requires technical expertise to manage and maintain the PBX system.
• Initial setup and integration can be complex.

Mobile Devices & Wi-Fi Connectivity

This involves using VoIP applications on mobile devices (smartphones, tablets) to make and receive calls over Wi-Fi or mobile data networks.

How does a VoIP phone call work?

1. VoIP App Installation: Users install VoIP apps (e.g., Skype, WhatsApp, Zoom, or business-specific apps) on their mobile devices.
   
2. Internet Connectivity: Calls are made over Wi-Fi or mobile data networks (3G, 4G, 5G).
   
3. Call Management: The app connects to the VoIP provider’s servers, which handle call routing and management.
   
4. Features: Many apps offer additional features like video calls, messaging, file sharing, and conferencing.

Advantages:

• Flexibility and mobility allow users to make and receive calls from anywhere with internet access.
• It’s cost-effective, particularly for international calls.
• Integrates with other app functionalities (e.g., video conferencing, messaging).

Disadvantages:

• Call quality can be affected by internet connectivity and bandwidth.
• Security concerns, especially on public Wi-Fi networks.
• Potential for increased data usage on mobile networks.

VoIP Phone System Requirements

Despite how user-friendly VoIP systems are, there are several requirements your set-up needs to fulfill in order for you to have the best experience possible. These include:

Reliable Internet Connection

• Bandwidth: Sufficient bandwidth to handle multiple simultaneous VoIP calls. A typical VoIP call requires about 100 kbps per line in both directions.
  
• Speed: A high-speed internet connection, such as DSL, cable, fiber optic, or a high-quality 4G/5G mobile data connection.
  
• Stability: A stable connection with minimal latency, jitter, and packet loss. Latency should ideally be below 150 ms, jitter below 30 ms, and packet loss close to 0%.

VoIP-Compatible Devices

• IP Phones: Special phones designed for VoIP that connect directly to the internet.
  
• Adapters: Analog Telephone Adapters (ATAs) that allow traditional analog phones to work with VoIP systems.
  
• Computers and Mobile Devices: Desktops, laptops, smartphones, and tablets with VoIP software or apps installed.
  
• Headsets: A good-quality headset with a microphone can improve call quality for computers and mobile devices.

VoIP Software or Service Provider

• VoIP Service Provider: A subscription with a VoIP service provider that offers features and plans suitable for your needs, like CloudTalk.
  
• Softphone Software: Applications that allow making VoIP calls from computers or mobile devices (e.g., Skype, Zoom, Cisco WebEx).

Network Infrastructure

• Router/Switches: Quality routers and network switches to handle VoIP traffic efficiently.
  
• Power over Ethernet (PoE): Switches or injectors that provide power to IP phones over the Ethernet cable (optional but useful).
  
• Quality of Service (QoS): Network configuration to prioritize VoIP traffic over other types of internet traffic to maintain call quality.

How to Choose the Best VoIP System for Your Business

There are several considerations you should take into account when looking for your next VoIP provider. These include:

1. Call Center Type:
   The type of call center software you choose can vary greatly. In addition to the features and integrations included, the solution type also influences deployment time and pricing. 
   
   For example, you can get cloud-based software like CloudTalk up and running for just $25 per user/month in a day.
   
2. Use Case:
   Different providers specialize in solutions based on business size or specific use cases. For example, a solution focused on SMB customer support may be more affordable but offer fewer features and international numbers.
   
   On the other hand, a provider primarily selling to outbound, enterprise-size call centers will be much more expensive but offer numerous features, integrations, international numbers, and high call quality.
   
3. Users and Features:
   How many agents you onboard naturally influences the price of your solution. However, many providers have a minimum/maximum number of users on their pricing plans, which can cause issues when selecting the correct plan.
   
   For example, if you have only a few agents but need high-tier features, you may need to buy add-ons or more licenses than you need. Similarly, if you have a lot of agents but low feature requirements, you still might get stuck with a more expensive plan.
   
4. Number Selection:
   The amount, type, and geographical location of numbers a VoIP provider can offer greatly depends on their connections within the industry, including local providers, regulators, etc.
   
   As such, it’s best practice to not only look at the numbers you want to port right away but also think into the future and consider your expansion plans (international numbers) or possible initiatives (toll-free numbers).

Ready to Switch to VoIP?

As shown in this article, VoIP as a technology can be pretty easy to understand and start using. All you really need is a stable internet connection and a reliable VoIP provider that can meet all your business needs. And there’s no better way of finding out whether CloudTalk is the right one for you than to…