What Is a POS System? (And Other Common Questions Answered)

What is a POS system?

A POS system includes hardware and software for making sales transactions. POS hardware refers to the physical components of the system, such as a tablet and credit card reader. 

POS software is a digital technology platform that completes purchasing transactions. Software can be based in the cloud or on a local server. Cloud-based software is more popular with small business owners due to its ease of use, affordability, security and convenience. 

Cloud-based software allows you to access your sales data from any device from anywhere with an internet connection. Although local-server-based software offers more stability, it’s more expensive and typically geared toward enterprises.

Types of POS hardware

POS hardware refers to the physical components needed to conduct the sales transaction. These are the most common types of POS hardware:

• Tablet
• Tablet stand
• Cash drawer
• Receipt printer
• Card reader
• Credit card terminal

Depending on your industry and budget, you can integrate additional POS hardware, such as these items:

• Barcode scanners
• Customer display screens
• Caller ID devices
• Self-service kiosks
• Coin dispensers
• Kitchen display systems
• Kitchen printers
• Digital menu boards
• Scales
• Tablet cases

Mobile POS systems

Mobile POS systems are software applications that let businesses process transactions from anywhere. They’re quickly becoming the most common choice for small and midsize businesses, especially those that need additional flexibility in their sales processes. 

In the past, small businesses had to rely on traditional POS systems that operated on-site. The software ran on closed networks, and the data was stored on-site on local servers. In comparison, mobile POS systems can be used on a smartphone or tablet and have minimal hardware requirements. 

Because they’re cloud-based, mobile POS systems are also much more cost-effective than traditional POS systems. There are fewer upfront costs, and many operate on monthly or annual subscription-based pricing. 

How does a POS system work?

The basic function of a POS system is to complete sales transactions. However, according to Jared Weitz, CEO and founder of United Capital Source Inc., data from these transactions can be used for many other business functions. 

“When a customer wants to complete a transaction, you will utilize a POS system to run their payment — card or cash,” Weitz told us. “The POS will generate the transaction and contain all of the data gathered from it. This data can then be stored within the system for inventory tracking, financial reporting, and hosting customer information for future contact and reference.” 

Ideally, your POS system will have additional capabilities. Some POS systems integrate with other programs to automate business operations and streamline information sharing. For example, some POS solutions integrate seamlessly with top accounting software and the best email marketing platforms. 

“Quality POS systems allow the business owner to manage all aspects of operations with multiple features and functionality, including reporting tools to help analyze data and make informed business decisions,” said Annie Legge, co-founder and creative director of DCA Studio. “By automating various business tasks with [a POS system], you will be able to put additional time into other areas of the business.”

What are the key features of a POS system?

A POS system has features that will help you manage your sales process and improve customer service. 

“A POS system is the central hub for the majority of your business needs — sales, inventory, customer management, even employee benefits and hour tracking,” Weitz said. “A great component of a POS [system] is the fact that everything can live within one place.” 

When you’re looking for the best POS system for your business, consider a system with these features: 

• Purchasing capabilities: Your employees can use a POS system to scan or key in the items that a customer is purchasing, add taxes and calculate the total amount of the sale. The system will then accept the payment and generate a receipt.
• Sales data recording: A POS system records and stores customer sales data either in the cloud or on a local server, depending on the system you choose.
• Inventory tracking and management: You can create a product catalog or menu in the system when you’re ringing up customer orders. The best POS systems also track inventory and automatically update quantities as items are sold. Some have low-stock alerts and purchase-order features.
• Third-party integration: If you use other programs to run your business — such as accounting, payroll and email marketing software — you want a POS system that seamlessly integrates with third-party applications. This allows the various applications to share information automatically so you don’t have to manually download and upload reports, customer lists and other data.
• Reporting: The POS system can generate a variety of reports that help you measure business performance and analyze data for your sales, products, customers and employees.
• Loyalty programs and customer management: Most POS systems have basic customer management tools that allow you to record customer information and create customer profiles that you can use for marketing purposes. Loyalty programs are often available as an integration or a paid add-on.
• Employee management: A POS system should allow you to restrict employees’ access and capabilities, and record their sales. Some systems include time-tracking and scheduling tools, but these features are often add-ons or integrations.

Although all of the features likely won’t apply to your business or industry, you will need purchasing and sales-recording capabilities.

What are the benefits of a POS system?

At the very least, a POS system can be beneficial to any organization that needs to process customer payments, since this is an essential part of business. However, the software often has features that add even more value. Consider these benefits:

1. It improves efficiency and reduces costs.

Legge said any good POS system will give you access to valuable data and reporting tools so you can gain insight into trends and overall business performance in relation to your goals. When you track your processes, you can improve efficiency and reduce unnecessary costs.

“Modules include stock control, sales, customer relationship management, reservations, accounts and staff management,” Legge said. “With this type of reliable system in place, you’ll spot areas that are performing well and improve those that need more attention. By following this process, your business will become more efficient.”

2. It streamlines your inventory management.

POS systems typically come with inventory management features that help you track, manage and order inventory as needed. POS systems’ integrations with other platforms can streamline your entire supply chain process. Brian Cairns, founder of ProStrategix Consulting, said most businesses benefit from inventory tracking and integration.

“It benefits the business when POS systems have inventory control and interface with your accounting software so you can automatically record total revenue, discounts, returns, cost of goods, sales taxes, etc.,” Cairns said.

3. It helps you manage employee performance and customer relations.

Although employee and customer management capabilities are not always necessary features, they can be extremely helpful for building brand loyalty, connecting with your customers and managing employees. 

“[A POS] system allows you to connect with your customers on a whole new level,” Legge said. “With reward programs, branded loyalty cards and promotions via integrated apps, there is more room for a relationship to grow with your customers. From an HR and employee-engagement point of view, the right system will give you insights into performance and attendance.” 

4. It helps you improve your customer relationships.

Most POS systems include features that let businesses store data about their customers. For example, you can keep track of their purchase history and contact information. This allows you to reach out to them about promotions or new items they may find interesting.

Most POS systems also come with built-in customer loyalty features. Customer loyalty programs allow you to track customer spending and reward them for repeat purchases. These features help you build a long-term relationship with your customers and encourage them to continue doing business with you. 

5. It integrates with other business software.

Most POS systems integrate with other business software, such as accounting, inventory and customer relationship management platforms. These integrations can help streamline your business’s operations and improve your overall efficiency.  

Costs of a POS system

A POS system is an investment. Understanding how it will affect budgeting is a matter of breaking down its costs. The average POS system costs include hardware, software and services.

Hardware

POS hardware typically costs $20 to $1,000, but the total cost will depend on the type of hardware you need. Some hardware pieces to consider are an iPad (or other touchscreen device), a barcode scanner, a cash drawer and a receipt printer.

Small businesses can often get away with just an iPad and digital receipts. But if your store experiences a high volume of customers, you’ll need features like physical receipts and cash management. Barcode scanners help with larger and fluid inventories.

Overall, you could expect to spend from $300 to thousands of dollars if your POS is a freestanding computer with all of the bells and whistles. These prices are per station.

Software

Software costs also vary considerably. They range from $40 to $100 per month for one register, although advanced systems can cost much more.

The most simple software applications generate a physical or digital receipt for every sale. Even basic software usually includes some sales tracking and analysis, although it can be pretty light. 

Advanced software is capable of tracking your inventory and keeping it replenished, and it provides detailed sales analytics. It can unify POS systems across locations and has omnichannel support. 

Services

Services include payment processing, contract billing and IT support. You can find plenty of other niche services, but those are the most common. The extent of services rendered will affect their costs, but payment processing is almost always the largest expense. It typically ranges from 1.3 percent to 3.5 percent per transaction.

What to consider when choosing the best POS software for your business

Knowing what a POS system can do and how much it will cost can help you make a good decision. These tips will help you put those ideas into context when you’re choosing a POS system.

Traffic

Your store’s traffic is the first consideration because it dictates what you need from your POS system. Typically, less-expensive systems are a little slower, which makes them more suitable for retailers that experience low traffic. The inverse is also true.

Number of sales points

How many points of sale do you need? Are they mobile or stationary? The answers to these questions will determine many of your choices. A mobile vendor needs substantially different hardware than a single shop with one cash register. If you need multiple sales stations, look at bundled pricing.

Features

There are many features to consider, but pay particular attention to payment processing, support, inventory and analytics. The importance of the features will vary depending on your business. 

For example, if you have some technical know-how or access to IT services, support may be less of an issue than it would be for a one-person operation. Payment processing can include methods your customers prefer to use when they patronize your business. Do they pay in cash sometimes? Do some customers pay by check? 

Finally, some stores need powerful inventory management integration, while some businesses have no inventory at all.

Ease of use

Any POS system you choose should be intuitive, user-friendly and easy to train your staff on. Consider how difficult the software is to navigate and whether the company offers ongoing training and support. 

Scalability

It’s important to consider where you see your business in five to 10 years. You may run a small brick-and-mortar store right now, but do you have plans to expand to multiple locations? If so, choose software that can grow alongside your business. 

As you’re evaluating different types of software, consider whether each system allows you to add and remove features, and if it offers seamless integrations. Your needs will vary with the POS system, but by taking the time to evaluate the features that are most important to you and your customers, you will find a POS system that is well suited to your store and easy to install and use.

Best POS systems 

The POS system that’s right for your business will depend on a variety of factors, including your needs, industry and budget. Here are some of the best POS systems: 

• Square: Square is known for being easy to use, and it’s the only POS system on this list that comes with a free plan. It allows you to accept payments, manage your inventory, track your data and integrate with over 350 programs. Read our Square review for more information.
• Shopify: Shopify is the best option for e-commerce businesses that need to accept occasional in-person payments. The company offers competitive flat rates and doesn’t require long-term contracts. Learn more in our Shopify review.
• Toast: Toast is a popular choice for restaurants, cafes and food trucks. The software is user-friendly, and the hardware is designed to last in a fast-paced restaurant environment. You can use the software to manage your menu and offer table-side and online ordering. See more features in our Toast review.
• Clover: Clover offers POS hardware and software, credit card processing and virtual terminals. You can use the software to accept online orders, manage inventory and run reports. Find out more in our Clover review.

Jamie Johnson contributed to this article. Source interviews were conducted for a previous version of this article.