What is a phone extension? The complete guide

Every business needs a robust phone system that’s geared to their needs. Even a small business with 1 or 2 employees needs an enterprise phone system, rather than relying on a personal line or cell phone. Consumer focussed phone lines do not offer business-grade features like a phone directory, call transfer, or virtual extensions.

As your staff numbers grow, so do your communication requirements. Every new employee needs their own phone number and ways to contact colleagues in other departments or offices. Your staff needs to communicate with you, with each other, and with your customers. 

This is where phone extensions come in. With extensions, you can connect every link in your company to each other and to you. Plus you give customers the chance to reach the person or department they want as per their need. For large companies, phone extensions are vital to communicating effectively. 

If you are curious about phone extensions and how to use them for your business, this comprehensive guide takes a deep dive into the topic.

Business vs residential phone extensions

Phone extensions have been around for a long time, the feature is almost as old as landline technology. However, phone extensions work differently in a consumer or business context. 

For a residential line, an extension allows users to answer a call from anywhere in the house. It essentially means you have a second or even third instrument connected to your main number. When someone calls your phone number, all devices in the house will ring allowing you to answer the call from anywhere.

But the crucial thing to remember is that there is only one line to the house. If you are talking to someone on the second instrument, no one else in the home can call outside from another device. The line shows busy for everyone not on the call. 

Phone extensions in a business system work differently. It allows an organization to purchase fewer lines than the total number of employees. It’s possible by sharing a handful of external lines through extensions. This system works because employees will not use the phones at all times. 

For example, if you have 10 workers, you don’t need to buy 10 lines. Depending on your needs, you can get by with 3 – 4 lines and phone extensions. An employee using an extension does not tie up the lines for everyone. 

What is a phone extension?

Extensions are short numbers that you can assign to an individual employee, a team, a department, or a division of your business. It is an internal code enabling users to reach their colleagues quickly and easily. Your customers can also bypass the normal auto-attendant by dialing the extension number of the person they want to talk to. The feature is also called extension dialing for this reason. 

Internal and external callers use the same extension numbers in different ways. Suppose you have Alice and Bob working in the same office. Alice’s extension is 103 and Bob’s number is 104. If Alice wants to talk to Bob, she can pick up her phone and dial 104. There’s no need to dial the business number in full.

For external callers such as customers or suppliers, the extension numbers have to be added to the main business number. So if your company phone number is 987-6543 , then a customer needs to dial 987-6543-103 to speak with Alice or 987-6543-104 to talk to Bob. 

How do phone extensions work?

Traditionally, extension numbers consist of 4 digits like 1002 or 2563, etc. Analog phone systems did not offer the possibility of longer or shorter extensions. Fortunately, hosted phone service providers offer 3 or 5 digit extension dialing as well. You can even assign extensions such as 4 or 65 to an employee. 

Project teams or departments can have their own extensions as well. It allows users to contact colleagues in other departments or divisions of the business. A small business may not need department extensions but as your organization grows, it is a useful feature to have. 

Phone extensions work in conjunction with the auto-attendant feature for business lines. If a customer does not know the extension number of the person they’re trying to reach, the auto-attendant allows them to select the department and forward the call to the correct extension. On the other hand, if a customer does know the extension number, they can skip the auto-attendant recital and dial the extension directly. 

The difference between virtual numbers and extensions

The way extensions work is very similar to virtual numbers in that they both forward calls to other endpoints. They are both virtual in the sense that they are not attached to a specific location or zip code. Both are made up of numbers, although extensions are often shorter. The difference between the two depends on the context in which they are used.

A virtual phone number, or VoIP number, is usually associated with the IP address of a specific device. It does not matter if that device is a desk phone, a cell phone, or a computer. When someone calls the number, the call is forwarded to the device attached to that IP address. When you call someone through the VoIP system, this is the number that is visible to others on their phone screen. It allows staff to make and receive calls on different devices while using the same business number. 

An extension is not associated with a specific device or its IP address. Rather it is a part of the VoIP phone system itself. The charges for creating and using a virtual number are set out in the contract with your VoIP vendor. Extensions are usually free, although there may be a limit on the maximum number you can have. Extensions can take you to an individual, a department, or even a voicemail inbox. 

Adding users and extensions

In most VoIP phone systems, adding a new user or extension is quite simple. You log into the online dashboard and select the option to add a new user. When setting up a new employee this way, you can also assign them a specific extension. Here’s a short video showing how to add users in VoIPstudio. Other services will have a similar interface. 

What if you already have staff and user accounts but want to add an extension? You can edit an existing user and add the extension you want to use. Suppose a staff member moves to a different office. You don’t have to change anything, their current extension will still work even if the physical location changes. If you have department extensions, you can update an employee’s number if they switch divisions or get a promotion.

Deleting an extension or removing a user entirely is also easy. If an employee leaves or the business no longer needs as many extensions, simply delete them and update the auto-attendant (if necessary). Even if your provider does not charge extra for phone extensions, you might want to delete unused ones for easier manageability.

How to dial a phone number with an extension

Dialing a phone extension is the same as you would use for a VoIP phone number. The only difference is the way internal and external calls are handled. 

Internal calls are those originating within the organization, regardless of physical location. So two employees in different offices or even countries can still talk to each other without incurring long-distance charges. Continuing the earlier example, Alice can call Bob by dialing 104 no matter where they are currently working from. Extensions dialing is especially crucial if your team is scattered in various locations.

External calls are those originating outside the organization and going to an endpoint within the company. So customers, suppliers, partners, and other parties calling one of your employees can also dial the extension but it is usually appended to the main business number. If you have enabled the auto-attendant feature on your phone system, even callers who don’t know the extension can be routed to the correct person. 

Not everyone within the business needs an extension while others may well require a fully-fledged virtual number. Typically, senior executives and those in roles like reception will need numbers. Other employees within a department like technical support or accounts can get by with extensions.

How are calls routed to an extension?

As you have seen, extensions don’t differ much from phone numbers from a user standpoint. But they offer crucial functionality behind the scenes. So it’s important to understand how calls go to different extensions after the caller dials the number. 

Routing calls to phone extensions involves one of several algorithms which determine how calls are handled. Most organizations will have different rules based on whether the recipient is an individual, team, or department. 

The first step is to create a directory that directs incoming callers to departments or specific individuals. When the caller dials the extension or selects an option, the call is routed accordingly.

Setting dialing rules for individuals

Users can create rules on which devices should ring for incoming calls as well. Suppose the sales manager has a desk phone, a business phone, a laptop, and the app on their personal cell phone. They can choose to have incoming calls ring all devices at once or to ring each device in a specific order until they answer the call. 

Setting dialing rules for departments

You may want different rules for various departments as well. For instance, the HR department may not get many external calls from customers. In that case, you can route all calls to the manager first and then to a team member only if the manager is unavailable. The manager acts as a single point of contact for outsiders. They can later assign tasks to specific employees. 

Setting dialing rules for teams

A technical support team, on the other hand, probably gets hundreds of calls from customers. You can set incoming calls to ring all extensions within the team at once (simultaneous outing) or cycle through each extension until someone answers the call (round-robin routing). 

In this case, sequential call routing where the call rings extensions in the same order each time can be detrimental. It means the first employee on the list will have to answer more calls, disturbing their other tasks. If your sales or service agents have to reach targets (deals closed or tickets resolved), then everyone should get a chance to answer incoming calls.

The benefits of using extensions

Since extension dialing has been around for a long time, you may be familiar with its usage in a business context. However, hosted VoIP services provide a more robust feature set for phone extensions. They are more versatile and you can use them in various situations that were not possible before. Call forwarding remains the most important use for extensions but businesses have also started using them in market research, advertising, entering new markets, etc. 

That being said, do you really need extensions if our business is quite small? If you’re still on the fence, consider the following benefits of using them:

1. Share multiple lines

As an organization grows, extensions go from a luxury to a necessity. Even a small business can benefit from using extensions instead of assigning a line/number to every employee on staff. The savings quickly add up whether you have ten lines or a thousand numbers. 

It’s not just the price for an extra line. Since hosted VoIP systems add traffic to the network, every extra line means provisioning more bandwidth. Extensions help you make the most use of the available resources.

2. Easy calling for internal use

Calling colleagues within the business becomes much easier with extensions. Your staff does not have to remember long numbers for each individual they need to call. A 3 or 4 digit extension is much easier to keep in mind. For a small business with 5 employees, it might not mean much. But what if a worker needs to communicate with 5 or 6 teams during the day? Shorter extensions make it easier for everyone.

3. Allow customers to bypass auto attendant

The auto-attendant is a very useful feature, especially for larger companies with multiple departments or divisions. A caller can reach the right person even if it’s the first time they are reaching out or don’t know the correct phone number to dial. 

However, it can be tedious to sit through for returning callers who already know where they want to go. Extensions allow customers to quickly contact the manager or account rep as long as they know the correct extension.

4. Save time and improve productivity

Organizations can save many hours by enabling extensions for individual users. Calling becomes more efficient but smaller extension numbers help in other situations as well. Employees can transfer incoming calls to the right person much quicker with extensions. They are also less likely to make mistakes when transferring as they have to dial fewer numbers. 

Adding a couple of users to an existing conference call? Extension dialing makes it much faster. Saving a few seconds here and there might not seem like much. But when you consider the number of calls on your network during the week? Extensions make a tangible difference in productivity. 

5. Test and evaluate advertising campaigns

Traditional advertising campaigns have generally used mass media to reach their audience. But today’s ad campaigns are more targeted to different sub-segments of the market and are often tailored to fit specific criteria. Thanks to social media and online advertising, businesses can run several campaigns side by side.

But how do you measure the effectiveness of each campaign? One option is to use phone extensions, especially if you want potential customers to call in. Suppose you are trying out 3 different ads on social media featuring various celebrities. You can insert a different extension for each ad and track incoming calls accurately. Pretty soon you would find out which ad is doing better than the others if any.

6. Maintain a local presence in new markets

Expanding into new territories and markets is always a risk for companies. You need an office to provide services to your customers but you don’t know if sales will be sufficient to justify opening a new branch. Having a local presence is important to many people and potential clients may balk at trusting an outside company. 

This is yet another scenario where phone extensions are useful. You can create a virtual phone number with a local area code and attach several extensions to it. Since extensions do not consider the physical location of your employees, staff in Seattle can answer calls coming from California. California customers will only see a local number on their screen and don’t have to know where your agents are located. 

7. Disregard the physical location of users

Do you have a mobile workforce that often travels for work? Or maybe the current pandemic has forced your teams to work remotely for the foreseeable future. Many offices are experimenting with hybrid workdays where some employees come in for part of the week only. Others may work mostly from home, coming in for training or meetings. 

This format gives you more flexibility when recruiting and retaining employees who have additional responsibilities at home. But your customers still expect someone to answer the phone and resolve their issues. Using extensions helps maintain a professional presence for your customers even as employees work from any location. Callers don’t have to know where your staff is as long as they can contact them when needed.

8. Enable enhance mobility for employees

The flip side of location independence is that it allows your employees to work from wherever. In a traditional office, staff needs time off for doctor visits, to pick up kids from school, visit ailing parents, etc. With the new work format, employees don’t waste as much time commuting to and from the office. They can schedule meetings around their other tasks and work later in the evening if they need to. Additionally, some illnesses don’t mean your employees can’t work but they may be contagious so you don’t want them coming into the office. Working from home means staff can keep working without spreading illness. 

But to enable this, you need phone extensions. They allow employees to work from multiple locations or even on the road as necessary. For example, an employee may have a desk phone in the office, use a laptop at home, and a cell phone while traveling. Phone extensions mean they can stay connected even as they are on the move. With mobile apps, employees never have to miss calls from customers.

9. Track, record, and analyze call patterns

Another excellent use for phone extensions is to track and analyze call patterns, specifically for customer-facing departments like sales or tech support. An organization will often have multiple products and services. Whether or not you have dedicated teams for each product line it is still useful to see which products need more support and why. 

Phone extensions can help you put customers in the correct queue where experts can answer their queries. It will minimize the number of times a call has to be transferred before resolution. Additionally, extensions can help you answer questions such as:

1. Which product queue has a higher call hold time and needs more agents?
2. Whether agents need additional training if customers are calling back several times for the same issue?
3. Does a product need better documentation as customers call for simple queries?
4. Do you need to reassign agents during peak hours or schedule shifts to cover more hours?

Phone extensions are nothing new but hosted VoIP services have extended their capabilities to new situations. Traditional extensions were primarily used for call forwarding and to share external lines. But modern phone extensions can do so much more than that. If you’re still on the fence about using them, just give the feature a test drive. Since most vendors offer them for free (at least a certain number initially or unlimited ones in some cases), there is no reason not to give them a try in your organization.

By signing up for a free trial of VoIPstudio, you will have complete access to all the features available for your business phone system.