Whether you run a retail store, a restaurant, or a bar, an efficiently working Point-of-Sale System is a must-have feature.
Long story short, a point-of-sale system, or POS, allows businesses to collect and accept customer payments. In other words, a POS system drives the entire checkout process.
However, there’s much more to POS systems than meets the eye.
Their application has evolved, as they now play a much more integral role in running an efficient business operation.
Join us today as we uncover the ins and outs of point-of-sale systems, guiding you through the POS system’s components, costs, types, and benefits.
After reading this guide, you will have learned:
- what a POS system is;
- what components does a POS system include;
- how POS systems work;
- how much a point-of-sale system costs;
- what the different types of POS systems are;
- what advantages such systems have;
- and how to choose the best POS system for your business.
All set? Let’s get started, shall we?
Table of Contents
What Is a POS System?
As we mentioned earlier, a point-of-sale (POS) system is nothing more than the place where your customers pay for their products and services – complete their point-of-sale transactions.
Such a system drives the checkout process, allowing you to process payments and route funds to your bank account once the sale is completed.
In other words, the POS system is your good old cash register. Or, at least, it used to be.
Nowadays, POS systems are fully digitalized, allowing businesses to check out their customers using various devices, such as smartphones or tablets. They also offer solutions beyond payment processing, operating as the central hub of any business. Modern POS systems can help you track inventory, collect customer information, manage staff, and much more.
Components of a POS System
A standard POS system consists of two key parts: software and hardware.
POS Software
POS software is the main component of any POS system. It works as your command center, executing all functions and applications of your point-of-sale system, such as calculating transaction accounts and processing payments.
That’s at the most basic level, of course. More robust software solutions also manage advanced functions like sales reporting and inventory management.
POS Hardware
If software is the brain of a POS system, hardware is its body. It includes physical components that allow you to accept physical payments from customers, as well as print receipts and store cash.
Common types of POS hardware include:
- Terminal: This is the primary device on which POS software runs. Traditionally, it’s a PC, but modern POS apps also run on mobile devices, such as tablets and smartphones. Some POS providers also offer dedicated hardware.
- Card reader: This standard device allows you to accept card payments and contactless payments, such as Apple Pay or Google Pay.
- Cash drawer: This is a standard place where cash can be safely kept. Modern POS systems come with software integrated with cash drawers that tracks how often the drawer is opened, minimizing fraud.
- Receipt printer: To provide physical receipts to customers, you must first print them. A receipt printer comes in handy here, automatically printing receipts whenever someone completes a transaction.
- Barcode scanner: Such scanners are typically included in retail POS systems, allowing cashiers to scan products and have the system automatically add them to the transaction.
What’s important to note is that POS hardware isn’t a mandatory component of a point-of-sale system. If you run an online store, you only need software to operate the checkout process.
However, if you run a physical store, restaurant, or bar, you will need hardware to accept customer payments. What types of POS hardware you need, however, will depend on the nature of your business.
How Does a Point of Sale System Work?
On the basic level, a POS system accepts, processes, and keeps track of payments. How this entire process works depends on the type of your business and the POS system you use. Usually, it looks like this:
- The system records the purchased products. The system first adds purchased product information (name, quantity, price, tax) to the transaction, e.g., a cart in a retail store or a tab in a restaurant or bar. In an online store, the POS system adds products during the checkout process.
- POS collects and processes the payment. Once everything is added to the transaction, a customer needs to finalize it using their chosen payment method – a credit card, loyalty points, cash, etc. The system then collects the payment and, once authorized by the customer’s bank, accepts to finalize the transaction.
- The system finalizes the point-of-sale transaction. Once the payment goes through, a receipt is printed (or generated), and, depending on your business, you hand or ship the product to the customer, the POS system finalizes the transaction and registers it into the system.
Again, as said, this process doesn’t always look like this. Some systems also include additional steps, such as offering customers loyalty points, asking them to complete a survey, etc.
How Much Does a POS System Cost?
That’s a tricky question to answer, as there are many different POS systems and hundreds of POS providers, each offering different prices for their services.
The cost of your POS system will also depend on your business type and how much hardware you need, if any.
Overall, we can divide POS-related costs into three categories – monthly software fees, hardware costs, and payment processing fees:
POS Software Fees – from $29 to $400/month
The pricing for POS software can vary significantly depending on your chosen option. For small business POS applications, subscription plans can start at $29 a month, with some subscriptions going below $20.
A standard POS software subscription typically costs between $50 and $200. However, high-end options can charge as much as $300 or even $400 monthly.
Free POS software is also available, with providers like Square free apps for mobile card readers. However, while such platforms might seem like a viable alternative to paid POS systems, they typically charge higher transaction fees.
POS Hardware Costs – from $50 to $2,000
POS hardware costs depend on the number and type of devices needed. In general, they can range from $50 to $2,000.
Mobile card readers, like smartphones or tablets, are the cheapest options, and many providers do not charge fees for running them. Mobile POS terminals that offer standard features like bar codes and card readers typically cost from $200 to over $600 for more robust options.
As for more advanced and comprehensive systems, these can cost even up to $2,000, especially if they involve a complex setup.
Payment Processing Fees – from 1.5% to 5% per transaction
How much you’ll pay for payment processing fees primarily depends on the merchant services provider you work with. These companies operate as middlemen between customers and your register, allowing you to accept and securely process your customers’ payments.
Merchant services providers make money by charging payment processing fees. These can either be flat-rate or variable, based on different payment methods.
We cover this in more detail in our in-depth guide to merchant services providers, so be sure to check it out if you’re interested in learning more about this topic. For now, what’s important to know is that these payment processing fees usually range from 1.5% to 5% per transaction. This might seem like a lot, but if your business processes a high volume of transactions, you should be able to negotiate lower per-transaction costs.
Types of POS Systems
Now that we’ve covered the basics of POS systems let’s dive a little deeper to uncover the types, applications, and benefits of different types of POS systems.
As you’ll find in various sources, their exact number might vary. In general, though, we differentiate between six primary types of POS systems:
In-Store POS System
An in-store POS system, also known as on-premise or legacy POS, is the standard POS system used in restaurants or retail stores. It typically consists of a PC, which acts as the command center, as well as various types of POS hardware we listed above, such as a receipt printer, barcode scanner, card reader, etc.
Mobile POS System
Mobile POS systems, or simply mPOS, are perfect for businesses that value flexibility and mobility, such as market vendors or food trucks. mPOS systems can be easily used on smartphones and tablets, allowing you to process payments on the go without investing in comprehensive POS hardware.
Cloud-Based POS System
Cloud-based POS systems store data on the cloud and are accessible from any device with an internet connection. They don’t require any form of physical POS hardware, which makes them the perfect solution for ecommerce businesses and multi-location retail chains.
Kiosk POS System
Kiosk POS systems are an interesting solution. Basically, these are self-service systems where customers can place orders and pay themselves. Kiosk POS systems are used mainly by fast-food restaurant chains, supermarkets, and even retail stores that want to streamline their customer experience.
Open-Source POS System
Open-source POS systems empower businesses to customize and enhance existing software with their source code. This makes open-source solutions a good option for businesses that require custom solutions, like startups or tech-savvy companies from specific niches.
Multichannel POS System
A multichannel POS system can integrate sales through various commerce channels, including in-store locations, your online store, third-party stores, event sales, and social media marketplaces. Multichannel solutions provide a unified view of sales and inventory, making them ideal for e-commerce stores with physical locations and large retail chains tracking sales across multiple channels.
Benefits of Using a Point of Sale System
A proper POS system can make all the difference for your business. Here are some of the many advantages point-of-sale systems can bring:
Streamlined Checkout Process
The core purpose of a POS system is to accept and process customer payments. But their functionality here goes beyond that.
POS systems can improve the overall efficiency of your checkout process, increasing the speed of transactions and reducing customer wait times. When paired with the proper hardware, they also allow you to accept a wide range of payment methods.
Furthermore, a POS system collects all transaction data to help you keep track of your finances.
Better Inventory Management
Modern POS systems can track inventory in real-time, helping businesses better manage their resources and prevent under- and overstocking. For example, a POS system can send automated notifications and alerts if inventory levels fall below a specified threshold.
This is crucial for several reasons. One is that it can help reduce costs, ensuring you only buy as much inventory as needed. Two, it ensures you won’t run out of stock in the middle of the day, harming your sales and reputation.
Detailed Reporting and Analytics
Newer POS systems can generate detailed sales reports, providing you with valuable insights into your customers’ purchasing habits and trends.
This way, you can better tailor your marketing strategies and offer more personalized offers to build customer loyalty.
Your POS system can also give you detailed data about your employee sales statistics and performance. Based on such information, you can see which employees might require extra training and who your top performers are.
Enhanced Customer Experience
A top-quality POS system can do wonders for your customer service. Such systems allow businesses to accept a wide variety of payments, from cash and credit cards to gift cards and mobile payments.
What’s more, as mentioned, POS systems can generate thorough sales reports, even tracking your individual customers’ purchasing history, data, and preferred payment options. Based on that, you can offer personalized discounts, offers, and product suggestions.
Some point-of-sale systems also allow you to integrate your loyalty program into the software, further enhancing the overall customer experience.
Improved Security & Regulatory Compliance
Besides improving your payment processing speed, POS systems also enhance the overall security of your transactions, protecting your customers’ financial data against fraud and theft.
A POS system also restricts access to sensitive data and system functionalities, ensuring only authorized personnel can access critical information.
Such systems can help with regulatory compliance, too. For example, a POS system can automatically calculate taxes and maintain accurate records for auditing and compliance purposes.
Scalability
Most modern POS solutions offer a high level of flexibility and scalability, quickly adapting to the changing needs of growing businesses.
This is especially true for cloud-based and multichannel POS systems, which are more straightforward and less costly to scale than in-store solutions. However, even such systems can be relatively easy to scale, allowing you to add more hardware and features to accommodate business growth.
How to Choose the Best POS System?
For your POS system to provide its numerous advantages, you must first choose the right solution. That, however, can be easier said than done.
There are tons of POS providers out there, which makes finding that perfect option pretty tricky. To ensure you do your research right, consider the following factors:
#1 Identify Your Business Needs
First things first, you need to decide what type of POS system would best suit your business. This depends heavily on the kind of business you run and its size.
For example, if you own a small local cafe, you’d likely benefit mainly from a small in-store or mobile POS system. If you run a bar or a nightclub, you can consider a more robust legacy POS with an integrated kiosk system.
For an ecommerce store, the best option would be the cloud-based POS system or a multichannel solution if you sell through multiple platforms.
#2 Features and Functionality
The POS system is only as good as its features. These vary depending on the provider, so be sure to look into that and find a solution that provides features that align with your business needs.
Start by looking into essential features such as sales tracking, inventory management, customer relationship management (CRM), and detailed reporting.
Then, consider advanced functionalities like loyalty programs, gift card management, multi-location support, and integration with e-commerce platforms.
Be also sure to look for any business-specific capabilities, such as table management for restaurants or customized kiosks for bars.
#3 Integration Capabilities
If you already have some existing systems in place, verify that the POS system integrates seamlessly with your current software solutions, be it a CRM or ecommerce platform.
Be sure also to check whether your chosen POS system is compatible with any other system you plan to use. This will help you avoid unpleasant and potentially costly surprises.
#4 Ease of Use
Choose a system with an intuitive, user-friendly interface to minimize training time and enhance operational efficiency. The best way to ensure that is by reading reviews from other users.
You can also check whether a POS provider offers a free trial. If so, be sure to take advantage of it and test the system yourself.
#5 Pricing
POS-related costs depend on numerous factors, primarily on the type of system you choose. Cloud-based systems, for example, are usually less expensive as they don’t require you to invest and install POS hardware.
Again, it all comes down to your business needs. Once you decide on a solution, calculate the upfront expenses, including hardware and installation fees.
Also, remember that most POS systems operate on a subscription model. Carefully assess each option to determine which subscription option best works for your business to avoid paying extra for features you might not need.
#6 Security & Compliance
If your chosen POS system offers merchant services, ensure it complies with PCI-DSS (Payment Card Industry Data Security Standard) to protect payment information. Also, look for robust encryption, data backup, and access control features to safeguard sensitive business and customer data.
#7 Scalability
Choose a POS system that can scale with your business, whether you plan to add new locations, expand your product line, or increase transaction volumes. Look into how easy and costly it is to add new features, hardware, and modules needed for your business to grow and evolve.
#8 Vendor Reputation
And last but definitely not least, always perform your due diligence on the POS vendor. Research the company’s history and customer reviews to ensure the provider is reliable and offers solutions that align with your needs and goals.
A good rule of thumb is to contact the vendor’s customer support. Even if you may not be that interested in their services, reaching out to their support team will help you evaluate how they treat their customers.
Wrapping Up
And that’s a wrap on our guide to POS systems!
As you can see, it’s not a question of whether you should set up a POS system in your business but rather when to do so. And the answer is: as soon as possible.
Choosing the proper POS system for your business is an absolute must to unlock your full potential. It’s not just about being able to accept payments. With the right POS system in place, you’ll be able to streamline your operations, boost efficiency, and improve your customer experience.
And to ensure you find the perfect POS solution, POS USA is here to help. Browse our blog to learn more about POS systems, check out our reviews to find which POS vendors we recommend, and use our POS comparison tool to find the best deal for your business.
Great article and examples of POS systems. You can also find another definition of POS at the urban dictionary here. https://www.urbandictionary.com/define.php?term=pos You’ll be surprised at what else it stands for.
I really got into this post about the meaning of P.O.S. I found it very interesting and loaded with unique points of interest. Thank you for sharing this great content, I found it very useful in my research.
A very helpful and in-depth article about what POS (Point of Sale) means and how it applies to different business verticles. It’s funny, I thought it meant something totally different. I have shared this out to my audience on my blog. Have a great day, cheers!
I agree with the “Purpose of Point of Sale” section of your article that states that “…the purpose of a point of sale is to be a top employee in your business that makes your life easy and helps to grow your business”. As someone who has dreamt of opening up a smaller-end restaurant in the future, I can definitely see the benefits of having one of these terminals in your restaurant or other places of business. I will be sure to look into the installation process when the time comes to open up my place of work.
I’m curious about how point-of-sale systems work that I’m usually seeing in restaurants and shops. It’s interesting to know that there are different software and hardware components that are specialized for different industries. If I had a retail store, I think I’ll get one so that I can easily keep track of the profits that come by day by day.
I love the way that you have explained the POS in such a simple and easy manner with the required examples. The amount of data provided is sufficient for newcomers entering the world of POS systems. A very informative blog. Great work and keep posting such informative articles.
Thanks Pratheek and everyone for all the great comments. Don’t forget to share the article on your social channels to help educate others.
It was really informative when this article talked about how businesses can have access to a customer database and sales reports if it has a POS system. I would imagine that there are many different POS systems that businesses can choose from when they are initially getting started. If I was a business owner, I would want to get a modern POS system that would make my business much more efficient.
Hey thanks Thomas! Glad you found the information informative. Feel free to share on your social platforms. :)
You made a good point when you shared that a POS system is helpful to complete transactions for a store. It is great to improve the efficiency of the business so every process can be done faster and smoother. I would like to think if a business is planning on improving its efficiency, it should consider getting a POS system from a reliable supplier.
Please what are the general advantages of using a POS System?
Hi Tunde, thanks for the great question. Here are a few general advantages and benefits you can expect.
1) Faster service – quicker ordering and checkout, assuming you have a reliable POS.
2) Boost productivity – with features like inventory control and employee management.
3) Improves accuracy – Accurate pricing and detailed reporting.
4) Prevents errors – fewer ordering errors and less chances of theft.
5) Various payment and loyalty options give customers more options for making different payment types like credit/debit cards, contactless payments (Apple Pay), and loyalty points.
6) Cloud-based – most modern POS systems are on the cloud and have options for mobile devices, which is almost a requirement for many industries these days.
Anyway, there are just a few I could think of off the top of my head. I hope it helps!