Finding ways to produce savings for a company heavily reliant on communication systems and networking can often seem challenging. However, the ability to run a phone system over the Internet, or Voice Over Internet Protocol (VoIP), clearly shows how traditional systems fare in comparison to the efficiency and savings of better tools. However, what also occurs when one introduces new technology platforms often includes ripple effects, and that’s where we get into the discussion about how to define the financials of an internet-based communication system.
Understanding CAPEX, OPEX, and VoIP
Historically, significant network changes and communications systems fell into the same bucket as infrastructure, which made them capital expenditures, or “CAPEX” for short. These costs frequently gained support through long-term financing, bond financing, or investment. They were rarely classified as operational expenses, or “OPEX” for short. Part of the reason tended to be due to accounting needs. Spreading the cost of an entire VoIP system change as a direct cost per unit produced or service provided was extremely hard, if not impossible mathematically, and then one had to explain that inflation to a client in pricing. Instead, most companies treated a VoIP charge as an overhead cost and built in the expense with an indirect rate added to a unit produced price via markup.
Why the Change?
With newer VoIP, you take away the old PBX hardware, then things become quite scalable financially. Because the service comes from a service provider, and the actual transmission is carried via the Internet versus a separate PBX line system, the infrastructure costs end up being quite minimal. Fees are charged and paid monthly per direct users with no sunk expenses. Suddenly, a VoIP system becomes attachable to lead activities and direct costs, down to a personnel level. And that becomes an operational cost accounting-wise.
So why would one make the shift from an accounting perspective? There are a couple of big benefits that an accountant will probably like. IT infrastructure continues to experience rapid and fast development, so large capital expenses in that area tend to be lost money when hardware becomes obsolete so quickly. Secondly, having a scalable cost system matches the costs to their activities far better, which improves cost recovery and reduces indirect costs and overhead. Additionally, treating a VoIP system cost in a monthly operational way frees up funds for other significant project expenses. Instead, the company pays as it goes, which is a far better position to be in from a cash flow perspective. Finally, sunk costs are minimal if not entirely eliminated because a company knows exactly what charges are occurring per person versus being stuck with large system costs for some ambiguous need.
VoIP may not generate a sudden new market for your company, but its paradigm-changing nature brings the potential to redesign your business’ cost picture. And that potentially produces savings which still may benefit your bottom line similar to new market profits added to your revenue stream.