What Is IVR? A Buying Guide for Business Owners

What is an interactive voice response (IVR) system?

In business terms, IVR refers to a large umbrella of software-based communication solutions, also known as computer-telephone integration (CTI), that eliminate the need for humans to do the manual work of answering and directing calls. Some IVR companies offer basic services that allow small businesses to record automated voicemail messages and route calls. Others facilitate website, database and CRM integrations, as well as robust reporting and payment-processing options. 

The latter set of services may not be worth the extra cost for your small business — these inclusions are primarily targeted at larger or established businesses. However, you may still want to spring for CRM integrations if you run a business-to-consumer (B2C) operation in which you sell products to individuals instead of businesses.

In the past, IVR was limited to telephone calls with a button-response system. During an IVR call, an automated voice recording would interact with a client, and in return, the client would press corresponding buttons to navigate the system. Today, many IVR systems have speech recognition built in, so callers can talk directly to the system rather than push buttons. However, many low-cost IVR vendors still offer button-response systems. Although IVR is relatively inexpensive, button-response systems may be the right choice for tight small business budgets.

“Visual IVR” is another term you’ll see on some IVR company websites. Visual IVR moves the first part of the customer interaction from the phone (e.g., listening to a recording and pushing buttons) to a device like a smartphone or a computer.

By allowing customers to enter their information online and indicate what type of customer service they need, calls can be routed instantly without going through a touch-tone or voice-activated menu. Instead, clients can connect with a customer service representative directly on the business’s website, receive a call back from a qualified rep, or get a number to call that will connect them with the right individual.

The callback option may especially benefit your small business. With a small team, each employee only has so much time, yet they likely have no shortage of tasks. Callback systems let your employees conduct customer outreach when they have the time and focus to deliver the most effective service and support possible. Excellent customer service can be a major selling point for a small business in a sea of large competitors.

How does IVR work?

Since the early 1960s, telephones have relied on a digital touch-tone system to dial phone numbers. These tones, generated by each key press, emit a dual-tone multifrequency (DTMF) signal. For a computer to understand those tones, most IVR technology requires the use of an additional telephony card installed on a computer’s motherboard. That add-on turns those signals into a trigger for IVR software to work.

But some modern solutions are more sophisticated. Many providers have since moved on to voice recognition or artificial intelligence (AI) when using IVR systems to respond to callers. In these instances, the IVR platform uses voice-extensible markup language to handle a phone call. With this style of IVR, systems no longer need a caller to enter data like their credit card number using the keypad, since they can just say the number out loud to the system.

In response to a caller’s requests, the IVR can use text-to-speech to automate messages. This saves time and effort, as taking the time to record every potential response would be impossible. The IVR can easily generate basic information like minimum payments, due dates and account balances, then deliver them to the caller.

Why do businesses use IVR?

The IVR system best suited for your company depends primarily on your call volume and the way you want to use IVR in your business. Here are a few common uses for IVR that may help you decide which kind of platform to implement.

Customer service

Small teams often find themselves unable to provide adequate customer service. IVR systems alleviate the costly need to hire employees to field customer questions and route calls. For general customer service needs, an inbound IVR system (for incoming calls) is usually sufficient, but if you foresee requiring outbound IVR (for partially to fully automated outgoing calls) in the future, choose an IVR company that offers comprehensive services.

Payment processing and collections

Automating payment transactions is a common use for IVR systems. In addition to outbound collections calls, IVR services make it possible for customers to call companies to obtain their billing information or account balances and then make payments themselves. IVR systems that offer credit card payment processing are typically more expensive than those that don’t, but for many B2C small businesses, the cost is still lower than hiring individual customer service representatives to process payments.

Marketing and communication

Outbound IVR can be used for marketing purposes, such as alerting potential customers about a new sale or product, as well as communicating with existing clients. For example, a dentistry office might use an outbound IVR system to make automated calls reminding patients of upcoming appointments, while a call center might use IVR to make sales pitches to potential clients. If marketing your small business is the driving force behind your company adopting an IVR system, look for vendors that specialize in call-center IVR and predictive dialing. [See our picks for the best call center services.]

What are IVR features to consider?

When selecting an IVR system, look carefully at the kinds of features being offered. The IVR solution you choose must fit your company’s specific needs, and many IVR features aren’t necessary for new or small businesses. Expect to find some of the following features on the market today, and aim for a service tier with only the features you need — extras raise your costs.

Cloud or on-site setup

With hosted IVR systems, the platform resides in the cloud, and the responsibility for maintaining and managing telecommunications and servers falls on the vendor. Onsite IVR systems, on the other hand, integrate with a business’s existing telephone system, and the maintenance of those platforms falls on the company using the system. 

The vast majority of new and small businesses lack an existing telephone system, making hosted IVR systems the obvious pick. Unless your business has specific reasons for maintaining a system on-site, it’s probably best to opt for a hosted service.

Inbound and/or outbound services

The two basic types of IVR services are inbound and outbound. Inbound IVR systems handle incoming call volume, while outbound IVR systems make calls on either a total or partially automated dialing basis. Many vendors offer both inbound and outbound IVR services, but inbound-only systems tend to be less expensive. 

Speech recognition

IVR systems with built-in speech recognition allow users to speak aloud in response to questions rather than only using their phone’s keypad. If all your business needs is an elementary IVR system to route calls among your team and give out basic information like your location and hours of operation, a simple touch-tone platform will serve your needs. Speech recognition tools are often pricier than touch-tone systems, but they’re worth the cost if your IVR needs are more complex.

Self-service

When an IVR vendor offers self-service IVR, it usually means the product is intended for basic use for inbound calling. Many providers sell comprehensive IVR services and also have separate, lower-priced self-service IVR options. If your small business only requires simple call routing or bill paying, and you don’t need outbound calling, self-service is probably the way to go. Note that many self-service options do not have speech recognition.

Text-to-speech

It’s always worth asking vendors if their IVR packages include any text-to-speech services. Text-to-speech is exactly what it sounds like: To set up your IVR system prompts using text-to-speech, you type in the prompt (like “Please press 4”), and select from a menu of voices to say that prompt. 

This type of service gives your IVR system a professional and consistent sound and negates the need to hire a voice actor or to do the recordings in-house. The latter isn’t something the average small business can afford, but a professional-sounding automated voice gives an impression of humanity that can go a long way in scoring your business new customers.

You should ask if there are limitations to any included text-to-speech services. Determine whether there are caps on how many recordings you can make and how often you can change your menus.

Integrations

Many IVR providers facilitate full integration with existing databases, websites and CRM systems. As you might expect, vendors that offer integration are often higher priced than those that don’t, but they bring a lot to the table. Consider that not all integrations are necessary, though. For example, a B2B (business-to-business) company with a team too small to serve lots of businesses might not need a CRM to adequately keep tabs on current and prospective clients. 

That said, for B2C businesses, with an IVR system that’s not integrated, a caller that’s routed through to a live person will have to relay to that customer service rep who they are, their customer ID, and other pertinent information. That representative will then have to look up the customer’s history in the company’s CRM or client database. With an integrated system, a customer calling could say (or type) their name or password, and the IVR system would instantly access their information, giving the rep the details immediately.

Integration is also essential for automated bill-paying through IVR services, but it’s really helpful for delivering a higher level of customer service in general since it makes it easier for customers to convey information and more effortless for representatives to access information for the client they’re speaking to. [Read related article: How to Provide Customer Service Like a Luxury Brand.]

Dashboard and analytics

Before you sign up for an IVR service, ask potential vendors for a demo of the platform’s dashboard and inquire about options for viewing analytics and pulling reports. Viewing the dashboard ahead of time should give you some idea of how easy it will be to operate the system and change it as needed. 

Additionally, consider any data reports that might be useful for your company and inquire about those types of reports before making a final decision. It’s entirely possible, though, that reviewing call data is a misuse of a small team’s time. As long as you can intuitively tell that your customers seem satisfied, that’s more important at this stage of your business than drilling into the numbers.

What are the advantages of using IVR systems?

If you’re a small business owner, juggling daily operations while managing the phones can be a struggle. When you implement an IVR system, you not only add a sense of professionalism to your operations, but you also welcome the following advantages into your company as well.

Faster answers

When people reach out to a small business with questions, they want answers as fast as possible. Once a caller goes through the IVR prompts, the service can quickly transfer the customer to the individual in the company who can answer their questions — if the system can’t handle the request itself.

More effective customer service

As a piece of technology, an IVR system helps customer service representatives address the questions they’re best equipped to answer in a timely manner. By connecting the right agents with customers’ requests and queries as needed, IVR can improve effectiveness and increase customer confidence in your business.

Cost cutting

Rather than hire a customer service team member whose sole job is to transfer requests to the right people, you can implement an IVR solution that automatically handles that task. As a result, that’s less you have to pay in employee salaries and employee benefits. When every penny counts, these savings are invaluable.

Increased customer satisfaction

Many companies rely on IVR systems to serve as a high-tech receptionist, letting the system greet callers before transferring them to the right employee. Since IVR systems are usually easy to navigate, customers can get where they need to go without much trouble. That will leave them more satisfied with their experience.

Improved performance

IVR connects your customer service agents solely with calls they know how to handle, so your team will likely feel more confident during customer interactions. This can lead to higher morale among your representatives, which, in turn, can boost agent performance. The better everyone on your small team performs, the more you’re getting your money’s worth from your labor costs, which are among your highest expenses.

24/7 availability

If you have an IVR system, customers who contact your company when your staff isn’t on call will still be able to interact with your business. No matter who is or isn’t working, your IVR platform can help customers start getting the answers they need. In some cases, your IVR solution can execute simple customer requests without any employees around.

Error reduction

When customers deluge you with calls, it becomes easy for agents to improperly route them or make other mistakes. Since IVR systems are automated, they lessen the risk of these errors. For example, if your IVR tells a customer seeking a refund to press six for returns, your caller will know exactly what to do. Gone are the days of agents trying to rapidly reroute upset customers — IVR solutions handle this without any mistakes.

What are the disadvantages of using IVR systems?

Even though IVR systems can address several telephone-related issues for small businesses, they also come with some disadvantages.

Complicated menus

The way you set up your IVR system is important. For many customers, one of the worst things that can happen is getting lost in an automated phone system’s menu. You can mitigate this by taking special care of how your menus are laid out.

Overwhelming to callers

If you front-load too much information in your IVR system, you risk confusing and bewildering customers. Rather than hitting callers with as much information as you can in the initial moments of an IVR call, offer only high-level information first. That way, customers can decide how far down the rabbit hole they want to go.

Impersonalized customer service

This problem is a symptom of IVR technology itself. Though IVR can be a great tool for small businesses, some customers may find it off-putting or difficult to understand. Others don’t want to deal with a digital system and would rather speak to a human.

If you find this is the case with your customers, you may want to include a way for people to bypass the system so they can speak with the next available agent. Small businesses have somewhat of a reputation for being more friendly and approachable than large operations, and giving your customers an easy way to get human help goes hand in hand with this perception.

How much does IVR cost?

Like many technology solutions, there is a vast price range for IVR systems. The most expensive IVR platforms are onsite telephone systems. The process of implementing an in-house system may include fees for installation, server and phone rentals, ongoing maintenance, and software.

On-premises solutions often cost thousands of dollars in setup charges alone, in addition to high monthly fees. Most small businesses opt for hosted services because they’re less expensive and faster to implement. Plus, a physical office or storefront isn’t required to use one. Even so, there is variety in the service charges and pricing structures among hosted IVR services.

The lowest-cost cloud vendors typically offer IVR for a monthly subscription fee, with rates starting at around $50 per month per user and going up to more than $100 per month per user. Pricing structures like these typically don’t have contracts, so they can be terminated or changed at any time. The level of service you opt for typically correlates with how many features you want and how many minutes of IVR time are included in your subscription (watch out for overage charges).

Higher-priced cloud services, which offer integration, analytics, speech recognition and other sophisticated tools, are typically contract-based. The prices and terms vary depending on the features included and the number of lines being provided. If you’re leaning toward a more comprehensive system, request a price quote on the company’s website. Remember, though, that your business might need only what the lowest-cost vendors provide.

How do you get started with IVR?

Before you can get started with IVR, you’ll need a cloud-based business phone system or a business phone number. In many cases, if you choose a VoIP system instead of a landline, you’ll get immediate access to IVR tools. 

A big part of getting started with IVR is choosing the right business phone system. This means deciding whether you want a landline, VoIP or virtual phone and whether you prefer onsite or cloud-based hosting. Then, consider your budget, your potential for business growth in the future and your internet signal’s strength. Confirm that the systems you’re considering include all the features you need along with easy access to customer support.

Once you’ve selected and purchased a product, you can typically use the platform’s IVR portal to write out text prompts for the IVR to read aloud to customers who call your business. For example, you could write, “To speak with a representative, press three now.” After that, you’d save your IVR prompts, test them out, and then enable them. You may also be able to set fallback actions for when a caller doesn’t choose any of the numbered options.

What are the top IVR services?

The following business phone providers offer IVR services. Visit our overview of the best business phone systems to learn more about these platforms, as well as other great options. 

1. Nextiva

Nextiva’s VoIP system includes an IVR service powered through conversational AI. This way, customers can tell your IVR what they need as though they’re already speaking to an agent. The AI can rapidly connect your customer with an actual agent as well. Additional innovative features make Nextiva one of the top business phone systems for multisite healthcare and retail needs. Read our full Nextiva review to learn more about the product’s capabilities.

2. RingCentral

Some RingCentral plans include multilevel IVR. With this feature, you can create IVR menus in different languages or route callers to your business’s location nearest them. You can use text-to-speech, file import or self-record to create up to 250 IVR menus. Other tools make RingCentral one of the best phone systems for collaboration. Check out our full RingCentral review to learn more.

3. Dialpad

Dialpad makes implementing IVR within your business phone system especially easy. You can access your call routing module to direct callers to agents, voicemail, prerecorded messages or automated menus. Dialpad also stands out as a great choice for businesses prioritizing voice intelligence features – see our full Dialpad review to find out why.

4. Ooma

Ooma combines IVR features with an automatic call distributor (ACD) to perfect your call routing. Your ACD will connect callers with the right agent based on caller data, agent specialties, business hours and IVR. Multilevel IVR is quick to set up, and the vendor’s transparent pricing is one of the reasons it’s so ideal for small businesses.

Our Ooma review has all the details.

5. 8×8

Intended primarily for large-scale businesses, 8×8 offers IVR systems that are specifically designed with call centers in mind. CRM integration, contact center analytics and multichannel communication (phone, web, email and chat) make 8×8 popular with big corporations, but smaller companies will also enjoy its entry-level plan. Learn more via our full 8×8 review.

Getting your customers where they need to go

Robust IVR tools within your business phone system can eliminate caller confusion about where to direct questions. An IVR can boost customer satisfaction since it’s good at directing customers to speak with the right agents. Plus, when your team primarily does the work it’s qualified for instead of getting stuck redirecting calls, they’ll perform better as well. Combine these benefits with IVR’s financial upsides, and you’re looking at a highly valuable technology for your small business.

Max Freedman and Andrew Martins contributed to this article.