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

Skye Schooley
Skye Schooley
Staff writer
business.com Staff
Nov 01, 2021

Learn what a POS system is, how it works and how your business can benefit from having one.

To complete a sales transaction, your company will likely need a point-of-sale (POS) system. There are several types of POS systems, each with its own features and functionalities; for example, you can get a simple platform to conduct sales transactions or one that includes various operational capabilities, like inventory management. 

The best POS system for your business depends on your company size, industry, budget and the features you need. In this article, we break down what a POS system does and which features you need to be on the lookout for so that you choose a system that is perfect for your business and your budget. 

Editor’s note: Looking for the right POS system for your business? Fill out the below questionnaire to have our vendor partners contact you about your needs.

What is a POS system?

A POS system comprises two elements: POS software and POS hardware. POS software is a digital technology platform that completes purchasing transactions. Software can be cloud-based or local server-based; however, cloud-based software is more popular with small business owners due to its usability, affordability, security and convenience. Cloud-based software allows you to access your sales data from any device – even ones that are off-site – as long as you have an internet connection. Although local server-based software offers more stability, it’s more expensive and typically geared toward enterprises.

Bottom LineBottom line: A POS system is a combination of hardware and software that allows businesses to complete purchases, record sales data, manage inventory and employees, and view business performance reports.

Types of POS hardware

POS hardware refers to the physical components needed to conduct the sales transaction. Mobile POS systems are becoming the most common choice for small and midsize businesses, especially those that need additional flexibility in their sales processes. 

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-serve kiosks
  • Coin dispensers
  • Kitchen display systems
  • Kitchen printers
  • Digital menu boards
  • Scales
  • Tablet cases

TipTip: If POS hardware is important to you, check out our review of Clover. It has a variety of proprietary hardware at varying price points.

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 business.com. “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 rather than simply recording sales. 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 highly rated 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 and former marketing and communications manager at 3S POS. “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 better 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 looking for the best POS system for your business, consider a system that has the following 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 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 that you use 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 business programs to run your business, such as accounting software, payroll and email marketing, you want a POS system that seamlessly integrates with third-party applications. This allows the various applications to share information automatically, eliminating the need 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 add-on feature (at an extra cost) or as an integration.

  • Employee management: A POS system should allow you to restrict employee access and capabilities, and record employee sales. Some include time-tracking and scheduling features, but these features are often add-ons or integrations. 

Although not every feature may apply to your business or industry, you will need purchasing and sales-recording capabilities.

What are the benefits of POS systems?

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.

1. It improves efficiency and reduces costs.

Legge said that any good POS system will give you access to valuable data and reporting tools so you can gain insights 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. Since most POS systems can integrate with other platforms, this can streamline your entire supply chain process. Brian Cairns, founder of ProStrategix Consulting, said that 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.” 

Costs of a POS system

A POS system is an investment. Understanding how it will impact budgeting is a matter of breaking down its costs. The average POS system consists of three separate costs: hardware, software and services.

POS system cost overview

ComponentCost
HardwareAnywhere from $20 to $1,000, depending on your specific needs
SoftwareBetween $40 and $100 per month
ServicesTypically between 1.3% and 3.5% per transaction

Hardware

POS hardware typically costs $20 to $1,000. As with any system, though, 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. If your store experiences a high volume of customers, though, 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 ($329 for a current iPad) 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 receipt for every sale (typically digitally). 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 impact their costs, but payment processing is almost always the largest expense. It’s as varied as anything, but it typically ranges from 1.3% to 3.5% per transaction.

Tips for choosing the best POS system 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 to choosing a POS system.

Traffic

Your store’s traffic is the first consideration because it dictates what you need from your POS. Typically, less expensive systems run a little slower, and that makes them more suitable for retailers that experience a small amount of 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 countless features to consider, but four to pay particular attention to are 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? All the time? Do some customers pay with a check? Take your customers’ preferences into consideration. Finally, with inventory, some stores need powerful inventory management integration, while some businesses have no inventory at all.

TipTip: Businesses should purchase a system that easily integrates with their other business platforms, like accounting and marketing applications.

Your needs will vary with the POS system, but by taking the time to evaluate which features are most important to you – and your customers – you will be able to find a POS system that is well suited to your store and easy to install and use.

POS system frequently asked questions

Can you use a POS system on your phone?

The short answer is yes. There are two different ways to use a POS system on your phone. The first option is to record your sales data onto a cloud-based POS software application. 

“Modern POS systems allow the business owner to access valuable data and reports via any device with an internet connection, including a mobile phone,” Legge said. “As the data from the POS [system] is backed up to the cloud server, accessing the data can be performed via either a portal in an internet browser or a dedicated app.” 

The second option, which is perhaps more convenient, is to perform sales transactions directly from your mobile device. Legge said that mobile cloud-based POS providers, especially those in the retail sector, allow small business owners to have a basic POS app on their mobile device and take payments via a handheld card terminal.  

“This is great for retailers and businesses that have more than one location, that travel for distribution, or sell products at trade shows, booths, and markets on the go,” Weitz added.

FYIFYI: If you’re looking for a POS system for your retail business, Lightspeed may be a good option for you. Learn more in our Lightspeed review.

What is the difference between a POS system and a cash register?

A cash register is part of a POS system. Using a cash register by itself is a somewhat antiquated way of managing sales, though, since a cash register’s functionality is limited to calculating sales. 

“A cash register simply captures the transaction: purchase prices less any discounts, etc.,” Cairns said. “A cash register alone would require a more manual system where sales are tallied at the end of the day and discounts, returns, promotions, etc., would be added to balance the cash at the end of the day.” 

This way of recording sales requires you to maintain a separate system for inventory management and bookkeeping. It also increases the likelihood of errors, whereas with a POS system – again, depending on which one you buy – these functions may be automated. 

Your budget and business size will be the two biggest deciding factors. 

“If you have a small business with a few transactions and minimal inventory, a POS system might be too expensive,” Cairns said. “If you have numerous transactions across a number of salable items, then the time saved by the POS [system] would likely pay for [your investment in] it.” 

What is the difference between a POS system and POS software?

POS software is a part of a POS system. POS software is the platform used to complete sales transactions, plus it helps manage other business integrations. A POS system is the combination of POS hardware (e.g., a tablet, cash drawer, receipt printer and credit card reader) and the software. 

When choosing a POS system for your business, consider both your current and future business needs. 

“If you are building a small business, invest in a more advanced POS [system] that will not only meet your needs today, but set you up for success down the road,” Weitz said. “Having to make adjustments and larger purchases later will only slow you down when your business is ready for growth.” 

What are the different types of POS systems?

The short answer is mobile/tablet, terminal, online (cloud-based) and self-service kiosk – or sometimes a combination of these options. Since a POS system is made up of software and hardware, the type of POS system you create can vary. You can have either a cloud-based (online) system or a local server-based (on-site) system. 

When choosing the hardware for your system, you can choose a mobile/tablet POS system or a stationary terminal system. A mobile/tablet system is the more popular and desired type of POS system since it offers great flexibility. A terminal is an all-in-one system that has both software and hardware, although “terminal” also describes computer/touchscreen combos. Terminals tend to be big and bulky; however, smaller, sleeker versions have recently been introduced, which are more desirable than their legacy counterparts.

Self-serve kiosks are essentially all-in-one devices. Small businesses can use a tablet POS system that has a kiosk mode for customers to use. This is commonly available with restaurant POS systems, but there are a few retail POS systems with this capability as well. 

Do you need a complete POS system or specific components?

It depends on your business. Very small businesses with just a few sales may need only a tablet, card reader and receipt printer. Most businesses need a card reader (or credit card terminal), a receipt printer and a way to store their cash (a cash drawer). You’ll also likely need a device to register the information onto (e.g., a tablet or terminal). 

Retail businesses may need additional components like barcode scanners, customer display screens and coin dispensers. Restaurants and bars may need kiosks, kitchen printers and scales. If you’re looking for a POS system for a restaurant or bar specifically, check out our TouchBistro review and our Toast review.

Why are POS systems important?

The POS system physically manages the cash flow of your business. If you can’t take money, you don’t have a business. The POS is integral. It needs to be reliable and accurate. It can also provide modern benefits beyond storing cash (like data and analytics).

Source interviews were conducted for a previous version of this article.

Image Credit:

Patrick Daxenbichler / Getty Images

Skye Schooley
Skye Schooley
business.com Staff
Skye Schooley is a staff writer at business.com and Business News Daily, where she has written more than 200 articles on B2B-focused topics including human resources operations, management leadership, and business technology. In addition to researching and analyzing products that help business owners launch and grow their business, Skye writes on topics aimed at building better professional culture, like protecting employee privacy, managing human capital, improving communication, and fostering workplace diversity and culture.