What Is a Point-of-Sale (POS) System & How Does it Work?
Meaghan has provided content and guidance for indie retailers as the editor for a number of retail publications and a speaker at trade shows. She is Fit Small Business’s authority on retail and ecommerce.
A point-of-sale (POS) system manages the point at which an item or service is paid for in retail stores, restaurants, bars, salons, and other businesses that transact in-person sales. POS systems are the software and hardware that manage purchase, return, and exchange transactions. The point of sale is typically the register, checkout counter, or cash wrap. But it doesn’t always happen at a counter. The point of sale can also be curbside if a customer is picking up a click and collect order or on the sales floor through a mobile POS.
But POS systems do much more than handle the checkout process. Here’s everything you need to know about POS systems—from how they work to how to choose one that’s right for your small business.
How Do POS Systems Work?
Instead of clunky cash registers, modern POS systems operate on tablets, computers, and smartphones. Basically, POS systems can work wherever your customers are—making it quick and easy to accept payments as long as you have a stable internet connection. Some also accommodate offline payments, in which case you don’t even need a connection.
It’s generally simple to figure out how to use POS systems to process transactions, but they do so much more than that. Once the order is complete, the POS works behind the scenes to help update on-hand inventory levels, track customer data, and more.
Common Features of POS Systems
When searching for the best POS system for your small business, start with identifying which features you need—both today and in the future. Remember, the specific features your POS has depends on both the platform you choose and the plan you sign up for. Some types of POS systems have more limited or even specialized features—things like table mapping and menu management for food-based businesses, for example.
Sales and Checkout
A POS system creates a quick and frictionless checkout experience for both you and your customers. At checkout, easily add items to a sale via barcode scanner or touch-screen entry. The total will appear instantly with the option to add coupons, loyalty points, or other discounts at the touch of a button.
The checkout process is also a perfect time to gather customer information that leads to data that serves them better. Here are a few ways POS systems can help:
- Collect general customer contact information
- Create customer profiles to store purchase history
- Collect signups for email marketing newsletters and promotions
- Enroll customers in loyalty programs
Payment Processing
Credit card terminals mean charge reports and reconciling tickets to sales. With POS systems, it’s already done for you—making your end-of-day simple and quick.
Plus, POS systems make it easy to accept credit cards wherever you make a sale. Encryption methods securely connect card readers to smartphones and tablets for mobile sales and enable you to accept online payments via your website and enter phoned-in payments using your POS system’s virtual terminal.
Inventory Management
Inventory management features are one of the top reasons businesses adopt a POS system. And now, mostly every POS system lets you create SKU numbers and store key product data, such as:
- Supplier information
- Wholesale cost (regular, sale, and discount prices for items)
- Variables (size or color)
- Current stock quantities
Retail POS systems often have features to create and print barcodes and shipping labels, as well as track orders for curbside pickup.
The best POS systems also offer advanced inventory features that help you manage purchase orders and forecast product demands. If you need to track inventory anywhere, a POS will improve the process.
Customer Relationship Management (CRM)
POS systems track every purchase down to the fine details, which aids immensely in your small business’ marketing efforts. Tracking customer contact info, purchases, totals, payment methods, and returns isn’t only helpful in overall sales—but also targeted marketing campaigns.
When you know who purchases what, who frequents your store the most, and who the big spenders are, your marketing efforts can get a lot more successful.
Marketing Tools
Email marketing campaigns are one of the most popular marketing tools within POS systems, as they build and manage your email contact list for you.
When you’re ready to send marketing emails with promotions, you can use your customers’ order histories to target those most likely to respond. With POS systems, tying your order history to email campaigns helps you create far more effective campaigns. Some also offer solutions for selling on social media platforms like Facebook and Instagram, as well as integrated loyalty and referral programs.
Employee and Team Management
POS systems offer a variety of employee management tools, too, with features for time tracking, scheduling, commissions, internal reward programs, permissions, and more.
Some also allow you to access or integrate complete payroll management so your time tracking and payroll tools are in one automated system. Some systems offer this feature directly, while others offer this solution through third-party integrations.
Reporting and Analytics
POS systems track every sale in detail—even the most basic reports can tell you which items are top sellers and slow movers, leading to more informed purchasing decisions.
Sales tracking also helps you pinpoint and predict seasonal upticks in certain categories or overall sales so you can plan your inventory and staffing to meet your busy cycles. Overall, POS systems make it easy to stay on top of retail data analysis.
Centralized Multichannel Sales
A POS system that offers multichannel sales can connect your in-store and online sales activities in one convenient, centralized system.
Many POS systems integrate with many online sales platforms to sync your sales, payments, customers, and even inventory counts between the in-store system and online sales channels.
Benefits of POS Systems
POS systems are designed to save you time and increase productivity.
- Saves time: Whether you’re the owner or associate, POS systems help save time when it comes to managerial tasks and the checkout process.
- Offers insights: POS systems provide a wealth of data about your customers—which helps you make better decisions regarding your inventory, marketing, goals, and processes.
- Scales with your business: Typically, POS software will always come with timely updates that help you stay ahead of the curve as technology inevitably evolves.
- Automates the less fun stuff: From inventory management to employee scheduling, POS systems handle this work for you so you can focus on your more important to-do’s.
- Increases accuracy: When you don’t have to enter prices and items manually, the room for error gets smaller.
- Provides flexible payment options: Since most POS systems come with regular updates, your small business can offer the latest and greatest payment methods. A study by the Federal Reserve shows the steady decline of cash and check payments alongside a rise in debit, credit, and electronic payments.
For a closer look, check out our top benefits of using a POS system.
POS Hardware
For brick-and-mortar small businesses, you’ll need hardware that connects with your POS system. The good news: The simplest of small businesses only need a connected device (desktop or tablet, for example) and credit card reader.
Here are a few types of hardware to consider, but keep in mind that what you’ll need mostly depends on the type and size of your business:
Register
Most registers are now in the form of a desktop computer (with monitor), but many businesses still use simple cash registers. Cash registers are typically handy for those who only need the bare minimum, as they already come with cash drawers and no other bells or whistles are needed.
Connected Device
A device like a tablet or smartphone can easily take the place of a desktop computer. Tablets also can be used with a stand for ease of use.
Cash Drawer
Cash drawers aren’t just a safe space for cash, but can be a great place to organize and keep card payment receipts.
Receipt Printer
These days, receipts can be emailed, printed, or neither. Receipt printers give you the ability to provide preferred options for your customers and also help you have resources for your own sales tracking and management.
Barcode Scanner
Barcode scanners not only help streamline the checkout process, but it can also provide your small business the ability to manage and track prices, stock levels, and more.
Learn more about touch-screen monitors, card readers, and accessories with our guide to POS hardware.
POS System Costs
Having the ability to streamline your transactions for both you and your customer doesn’t have to come with a hefty price tag. That’s where understanding the difference between server and cloud POS systems comes in.
Server POS systems are stored locally and typically cost more than cloud systems due to setup and licensing fees. Some can also include maintenance and monthly fees, in addition to hardware costs.
Cloud POS systems have lower setup fees, but the monthly fees can be a bit higher than server POS systems. However, there are affordable (and even free) options—like Square, for example—that still come with flexibility, security, and ease-of-use.
The way to determine how much you should pay for a POS system lies in what your small business needs to thrive. Here are a few questions to ask yourself when deciding your budget:
- Does this software meet my needs?
- Is it easy to use?
- Does it save me time?
- Should I lease, purchase, or finance my hardware?
- Will the software and hardware scale with my business?
- Have I factored in credit card processing fees?
- Should I pay monthly or annually?
How to Choose a POS System
First things first: Always consider the needs of your small business, both now and in the future. Any POS system you choose will only be as good as the functionalities your business needs to thrive.
Here are the top 10 things to consider when choosing a POS system:
Price
Always look at the costs—whether they’re monthly, setup, or payment processing fees.
Next in line is the cost of the hardware you may need. The best POS systems offer interest-free financing or installment payment plans on hardware and have multiple software pricing plans so you can start with an affordable option and upgrade as your business grows.
Ease of Use
POS systems should be user-friendly and require little training for staff. Some of the best systems have instructional videos, community forums, and demos or training modes so new employees can get comfortable with the system.
Payment Processing
Choose a POS system that includes either built-in payment processing or integration with popular payment processors.
Hardware
Some systems run on generic hardware like iPads or Android tablets, while others function on proprietary hardware systems. Proprietary POS hardware can be more durable; however, it can’t be repurposed if you change systems down the line.
Inventory Tools
All POS systems have some type of inventory tracking, but the best ones offer real-time stock levels with automated alerts, purchase order management, and forecasting tools.
Reporting and Analytics
A good POS system offers insights on sales, inventory, customer, and employee data. A great POS system also provides raw data, includes an automated reporting dashboard, offers tips on how to read and act on reports, and features options for exporting reports.
Scalability
The best POS system grows with your business. For example, if you have a retail store but plan to sell online in the future, ensure your POS system has an integrated ecommerce solution so you can manage all of your inventory and customer data in one place.
Plan on opening additional stores? Your POS system should be able to manage multiple locations centrally.
Integrations
If you rely on other software for ecommerce, accounting, or payroll, choose a POS system that integrates with those products. Note: Many POS systems offer those features as well, so it’s possible to find one software that does it all.
Customer Support
Ensure your POS system offers live phone support during your normal business hours so you can always get help immediately if a problem arises.
User Reviews
Always read user reviews before making a final decision. And, if possible, talk to business owners in your area to get their firsthand account.
Tip: If you are an established business looking to switch to a POS system from a cash register, it’s possible you will need to switch payment processors. However, many systems are willing to negotiate processing rates for businesses over a certain volume. When testing different systems, ask if they can match or beat your current rates.
What Does the Future of POS Systems Look Like?
Over the past few years, there’s been a major shift in how POS systems have not only evolved the checkout process but can streamline business tasks behind the scenes.
But one of our biggest takeaways for the upcoming year is flexible fulfillment opportunities. According to Retail Consulting Partner’s 2021 POS & Customer Engagement Report, more than half of retailers are prioritizing delivery and pickup options—noting that this is key for brick-and-mortar stores to implement to reduce ongoing revenue impacts from COVID-19 and other unplanned events.
Here are just a few ways we’ll continue to see POS systems shape the future for small businesses:
- Increased flexibility for mobile payment options
- Increased access to sales data through cloud technology
- More personalized marketing solutions
- Data and analytics that lead to more informed purchasing decisions
- All-in-one solutions connect in-person, online, and social media sales
- Simplified hardware options
Bottom Line
POS systems are a must for small businesses, as they help streamline purchases, connect sales data to marketing efforts, provide flexibility to customers, manage product inventory, and provide tools to help manage your staff.
Now that you know what to consider—and how a POS system works—keep these three tips in mind:
- Always ask for a demo
- Test multiple POS systems
- Talk to other small business owners
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- Find the best POS system for your business.
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