Monthly vs Annual VoIP Service – Which is Better for your Business

Business VoIP (Voice over Internet Protocol) software providers like Nextiva, RingCentral, and Vonage provide a cost savings of 30-50% when compared with traditional desk phones.

Signing a long-term phone system vendor contract is thought to be a way to increase savings even further.

In the wake of COVID-19’s catastrophic impact on many businesses, companies are re-evaluating the true advantages of being locked into a single provider contract that’s a nightmare to get out of when unforeseen circumstances hit.

For many, now is the time to switch to a no contract VoIP service.

Greater flexibility isn’t the only reason why no contract options are worth considering.
Here, we’ll explore why forgoing a lengthy VoIP phone contract may be the right move for your company.

Table of Contents:

1. Contracted vs. No Contract VoIP for Business
2. Disadvantages of a Contracted VoIP Service
3. Advantages of a No Contract VoIP System
4. Potential Pitfalls of a No Contract VoIP Provider
5. Contract vs No Contract Pricing

Contracted vs. No Contract VoIP for Business

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Contracted VoIP phone service providers usually require a commitment of at least one year in exchange for a lower overall price for their services. The annual price must be paid in total on the plan’s initiation date, plus any activation and setup fees.

You may also need to pay to upgrade your Wi-Fi Internet connection and bandwidth in addition to buying a new router and other equipment.

No contract plans will charge a higher overall monthly fee and may still need an upgraded broadband Internet connection — but they don’t require a large upfront payment.

For example, VoIP provider Nextiva charges $251.40/user annually for its Professional Business Phone plan. Its no contract, month-to-month plan costs $24.95/user per month or $299.40/user annually. Signing a one-year contract offers a 20% savings, but requires a commitment to a Nextiva VoIP phone system for the entire year.

This means that even if Nextiva’s services don’t meet your expectations, you likely won’t be able to break the contract and get all or any of your money back. If you do want to end your contract early, you’ll have to pay a cancellation fee that often negates any significant savings you’d earn by breaking it before the year is up.

The below table outlines the other major differences between a yearly contract and month to month  VoIP services.

Disadvantages of a Contracted VoIP Service

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In addition to the higher initial cost, being “locked into” a VoIP contract has other disadvantages.

These include:

• The negotiation process
• Hidden fees
• A sudden drop in service quality
• Business downturn inflexibility

The Negotiation Process

Contracts with any SaaS provider can be difficult to negotiate.

These contracts are, without exception, initially written to benefit the provider over the customer. Successful negotiation requires a lengthy back-and-forth and even assistance from a contract lawyer — often both.

The most important areas of negotiation include warranties and SLAs, expected features and functionalities, data protection and ownership, and indemnity clauses. (Our post on successful Service Level Agreements provides more information.)

Small businesses that don’t have a lot of leverage often end up at a disadvantage, but larger companies that are established and able to court multiple vendors at once may receive better pricing and terms.

Non-contracted communication services require the purchase of a simple software license (the right to use the VoIP service) as opposed to also necessitating a tedious SLA negotiation.

Hidden Fees

As with any contracted business communication solution, so often that “great deal” you think you’re getting from a VoIP contract is spoiled by hidden fees and bogus initiation charges.

There are setup fees, early termination fees, installation fees, fees if you go over your set monthly limits, E911 fees, fees for additional users, and those mysterious “support” fees.

Especially when you first sign the contract, don’t be surprised if those fees end up costing you as much as or even more than the cost of the services themselves.

Vendors also use legal loopholes to charge fees for regulatory compliance programs like RCIP and Federal Universal Service laws. Furthermore, they use language within these contracts that’s intentionally vague (think “shall” instead of “must”) to avoid financial responsibility if their level of service drops.

Though no one can avoid fees altogether, you can avoid many of them if you opt for a month-to-month plan. Our post on the legal VoIP fees and taxes will help you learn more about what to look out for.

Decreased Quality of Service

Before you sign a contract, VoIP vendors will promise you the world — instant customer support, 99.999% uptime aside from power outages, crystal-clear call quality, and “revolutionary” features you can only get with that specific provider.

But once you sign that contract?

You may encounter a serious decrease in your overall quality of service, including dropped calls, missed notifications, and issues call forwarding rules.

But when you call for help, your provider doesn’t come running to fix things. They already have your money, and they’ve trapped you in a contract that they know you can’t get out of for a year or more.

When you’re working with your own customers, who are you going to spend more time with — the client that’s already bought your most expensive product, or the one that hasn’t yet?

You don’t want your own business to suffer because your VoIP provider is too busy chasing their next lead to take your support request or walk you through a new feature.

Business Downturn Inflexibility

Earlier in this post, we mentioned the impact that the 2020 COVID-19 pandemic had on businesses of every size and in every imaginable sector.

You likely noticed lots of empty storefronts, and perhaps your own workplace was forced to reduce its staff to keep its doors open during the pandemic.

One of the many lessons Coronavirus taught businesses was that having the flexibility and freedom to immediately cut their operating expenses can be the difference between weathering a financial crisis or being forced to close.

Business downturn inflexibility — AKA, the inability to get out of a pricey contract when the going gets tough — can spell disaster. With a month-to-month plan, you can rest easy knowing that, if unforeseen financial, political, natural disaster, or other problems crop up, you won’t have to cut essential services because you can’t get out of your VoIP contract.

Advantages of a Month to Month VoIP Service

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Though there are numerous advantages to a no contract plan, the most convincing reasons to avoid signing something are:

• Being able to experiment with how your business benefits from VoIP as a whole
• Accepting a better offer from a competitor in the VoIP space
• Selecting a la carte features for a high level of customization
• Always having the upper hand

Opportunity to Explore Your Company’s VoIP Needs

Going with a no contract provider is an especially excellent choice for companies that are newer to the VoIP space in general.

Without the commitment of a long-term contract, you can learn more about how premium features like audio conferencing, and video phone calls can benefit your business. You can also better understand what to look for in a provider and avoid paying for expensive plans that you still have to purchase add-ons to tailor to your needs. Experiment with hosted PBX, SIP trunking, and softphone mobile apps allowing you to take calls from your cell phone or tablet.

You’ll have time to discuss the pros and cons of services you’ve tried out with your team members, understand the tools that help them to work more efficiently, and be able to better assess if you’re ready to completely switch from a landline to VoIP.

Be sure to also take advantage of free trials from top providers before making your decision. Note that some companies will automatically charge your credit card on the day the trial runs out, so if you’re not interested in the provider, remove the card the day before the trial’s end.

Ability to Take Advantage of a Better Offer

The number-one benefit of a no contract VoIP solution?

Being able to take a better offer from a rival provider.

Especially given the rise in remote work, the virtual telecommunications space is more competitive than ever. Vendors are undercutting one another’s pricing and adding free additional phone lines and unlimited calls to the U.S. and Canada to entice users. They’re even offering features like live chat messaging and advanced software integrations with platforms like Skype and Zoom.

When you’re trapped in a long-term contract, you won’t be able to go with a provider that’s offering you all of these things for a lower price than you’re currently paying.

Instead, you’ll be forced to stick with subpar service until your contract runs out — while your competitors swoop up and start benefitting from that offer instead.

Higher Level of Customization

Bundled service plans provide numerous VoIP features like caller ID, auto attendants, virtual voicemail, advanced inbound call routing, and call recording in a single package for a set price.

But when you opt for one of these bundled plans, you’re likely paying for features you don’t really need — and missing some that you could benefit from. Instead, choose your features a la carte and pay for them individually, completely customizing your plan.

Additionally, remember that providers are always adding new features and improving the user experience. The longer you take to sign a contract, the better product you’ll have in hand when you do.

Having the Upper Hand

Finally, when you don’t commit to a long-term contract with a service provider, you’ll always have the upper hand.

Think about the level of care you nurture your own leads with when you really want them to become a customer. You take the time to answer their questions and even provide special offers to sweeten the pot. Providers will do the same for you.

Plus, if you do decide to eventually move to a contracted plan, you’ll have much more negotiating power as an existing customer.

Potential Pitfalls of a No Contract VoIP Provider

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Though there are clear advantages to choosing a no contract provider, there are a few things to be wary of.

First, you won’t experience the same level of customer support as contracted clients will. Often, those with a contract are given a dedicated account manager and are given priority support — meaning their support requests will always take precedence over your own.

Consider working with a provider that has a rich online knowledge base you can pull from when support is needed.

Additionally, because you haven’t negotiated a contract, you won’t have the same guaranteed level of service as those that have. Though many providers still offer a 99% uptime, (the standard in the SaaS space) you won’t be protected in the same way that those with a detailed SLA will be.

The biggest potential issue is getting hit with a sudden monthly price increase because you haven’t agreed upon a guaranteed set price with the provider. If this happens, you’ll have to choose between paying a higher monthly amount, committing to a contract if you can secure a better price, or switching providers entirely.

Finally, note that you’ll likely have less control over how your data is used and shared than those with a contract. Providers may share your contact information, data on how you use the service, and more with third parties.

Though you’ll still be protected under VoIP FCC protocols, make sure you familiarize yourself with the provider’s privacy policy and the security of their data centers before making your final decision.

Contract vs No Contract Pricing​

How much money can you save with a contracted plan — and is that savings big enough to make the hassles of an annual contract worth it?

Below, we’ve outlined 5 of the top VoIP providers and compared the annual contract pricing of their most popular plans to the monthly no contract pricing scale.

Want to learn more about how the most popular VoIP vendors and PBX systems, and SIP trunks from providers stack up against one another? Our head-to-head comparison articles, like this one on RingCentral vs 8×8, to see which one is a better fit for your business.