What Is a POS System?

Point-of-sale (POS) systems handle the entire checkout process, from bar code scanning to payment processing. POS systems also include backend management features such as inventory and analytics. Restaurants, retailers, and most other small brick and mortar businesses can manage all aspects of their operations through a POS system.

The point of sale (POS) is the point of purchase in a retail store. It’s when and where a monetary transaction takes place. The point of sale is typically the register, checkout counter, or cash wrap. However, the point of sale can also be curbside if a customer is picking up an order, or on the sales floor if a customer pays for products.

POS systems are the hardware and software programs that manage these purchases, returns, and exchange transactions. The terminology is confusing because essentially the phrase “POS” can refer to both the point of purchase and the technology that enables the purchase. In this article, POS systems refer to the technology that enables the sale.

How POS Systems Work

Modern POS systems take the place of cash registers. Instead of clunky manual machines, they operate on tablets, desktop computers, or smartphones with a connected card reader for accepting payments. Retailers and other businesses can add on extra hardware as needed such as cash drawers, bar code scanners, and thermal receipt printers.

Although POS systems take the place of traditional cash registers, they have much greater functionality and are generally easy to set up.

Point-of-Sale Features

Sales and Checkout

A POS system creates a quick and seamless checkout experience for your customers and store associates. At checkout, staff can add items easily to a sale via bar code scan or touchscreen entry. Totaling the sale happens instantly and coupons, loyalty points, or other discounts can be applied at the touch of a button. During the checkout process, POS systems can also be used to collect customer contact information, create profiles to store purchase history, sign up for email marketing, or enroll in loyalty programs. POS systems also allow retailers to easily use the checkout process to gather contact and sales data to serve customers better.

Credit Card Processing

POS systems automatically connect credit card transactions to your checkout process. This simplifies and speeds up your checkout procedures and end-of-day reconciliation tasks. Unlike a typical credit card terminal and cash register setup, with a POS system, you don’t run a separate end-of-day charge report and reconcile tickets to sales. It’s already done for you. POS systems also make it easy to accept credit cards wherever you make a sale. Encryption methods let you securely connect card readers to smartphones and tablets for mobile sales, accept online payments via your website, and enter phoned-in payments using your POS system’s virtual terminal. All of this is above and beyond what you can do with a basic credit card terminal and cash register setup.

Inventory Management

Inventory features are one of the top reasons that businesses adopt a POS system. Virtually every POS system on the market lets you create SKU numbers and store key product data such as supplier information and wholesale cost (regular, sale and discount prices for items), variables (such as size or color), and current stock quantities. Retail POS systems often have features to create bar codes and connect a bar code label printer.

Some systems also include features to manage online orders such as creating shipping labels or tracking 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

POS systems let you record customer contact information and track every purchase down to the fine details. You’ll know what items each customer purchased, how much they paid, the payment method they used, and even if the items were returned at a later date.

Customer data is immensely helpful in overall sales management, but it also plays another important role by helping you fine-tune marketing efforts. Knowing who purchases what, who your most frequent shoppers are, and who the biggest spenders are, can help you craft targeted marketing campaigns. Without a POS system, targeting buyers based on their purchasing history is nearly impossible.

Employee and Team Management

POS systems offer a variety of employee management tools. Almost every POS includes features that set up multiple employee logins to track activity and set permission levels. Some POS systems also include features for time tracking, scheduling, and commission tracking.

For added fees, you can access or integrate complete payroll management within your POS so that your time tracking and payroll tools are all in one automated system. Some systems offer this feature directly, while others offer this solution through third-party integrations.

Marketing Tools

Many POS systems offer marketing solutions to put your customer data into action. Email marketing campaigns are the most popular marketing tool, but some POS tools also offer solutions for selling on social media platforms like Facebook and Instagram.

Using a POS system makes building an email list and keeping it updated a breeze—no more managing contact lists or spreadsheets manually. When you’re ready to send marketing emails with promotions, you can use your customers’ order histories to target customers most likely to respond. Tying your order history to email campaigns helps you create far more effective campaigns.

Reporting and Analytics

POS systems track every sale in detail, which gives you a wealth of data. Even the most basic sales reports tell you which items are your top sellers and slowest movers. These retail data analytics help you make 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. Many POS systems let you track sales by employee for commissions or internal rewards programs.

💡 Learn more: Read our guide on analyzing retail data analytics

Centralized Multichannel Sales

A POS that offers multichannel sales can connect your in-store and online sales activities in one convenient, centralized system. Many POS systems integrate with a number of online sales platforms and sync your sales, payments, customers, and even inventory counts between the in-store system and online sales channels. Some POS systems offer dedicated ecommerce solutions.

Locally Installed vs Cloud POS Systems

Cloud-based, also called Software-as-a-Service (SaaS) or web-based POS systems store data on the cloud in remote servers. Locally installed, on-premise POS systems (or legacy POS) store data on local servers on an internal network.

Cloud-based systems are easier to operate, can be accessed from anywhere, and require less upfront spending. However, they require an internet connection to function. On-premise POS are pricier, and you cannot easily access data remotely.

Most newer POS systems (like Square, Vend, and ShopKeep) are cloud-based systems. Currently, cloud-based systems are more popular, whereas up until about five years ago, locally installed systems were the norm.

Some POS systems offer hybrid models that are primarily cloud-based and can be accessed remotely, but store or cache data on a local server so that if you lose internet connection, the systems can still operate. For example, restaurants could still take orders, send them to the kitchen, and save encrypted payments to process once the connection returns. For high-volume businesses like busy restaurants, a hybrid model may be the best option.

💡 Learn more: For more information, check out our article on types of POS systems

How to Choose a POS System for Your Business

For small businesses, price is always an important consideration. However, you also need to consider the needs of your specific business. If you’re a boutique store, you may want detailed inventory management and customer tracking features whereas a restaurant would want menu and table management features. Here are the top 10 things to consider when choosing a POS system.

“The POS system you choose depends on your business and the details that you need to know to run your business effectively. An entry-level POS system might be enough for some retailers but not enough for others. The system you choose should cover what you need today but have additional capability for what you’ll need tomorrow. Think frequent shopper programs, inventory management, purchasing histories, and the ability to collect email addresses—the list is endless, because it builds as your store grows and changes. You want a POS partner that understands the expanse knowledge you need now and in the future.”

—Rich Kizer & Georganne Bender, Retail Store Design Consultants, Kizer & Bender

10 Things to Consider When Choosing a POS System

• Price: Look at monthly fees, payment processing fees, setup fees, and the cost of hardware. 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 a demo or training modes so new employees can get comfortable with the system.
• Payment processing: Choose a POS that either has built-in payment processing or integrates 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. Businesses should be able to see raw data, an automated reporting dashboard, tips on how to read and act on reports, and options for exporting reports.
• Scalability: Choose a POS system that can grow with your business. For example, if you have a retail store but also plan to sell online, make sure your POS has an integrated ecommerce solution so that you can manage all of your inventory and customer data in one place. If you plan on opening additional stores, make sure your POS can manage multiple locations centrally.
• Integrations: If you rely on other software for functions like ecommerce, accounting, payroll, or anything else, choose a POS system that integrates with those products. However, many POS systems offer those features as well, so it’s possible to find one software that does all of those functions.
• Customer support: Ideally, choose a POS system that offers live phone support during your normal business hours so that you can always get help immediately if there is a problem.
• User reviews: Before making a final decision, read POS user reviews from other business owners and, if possible, talk to business owners who use each software.

How to Evaluate POS Systems

• Narrow down systems based on features and budget: Create a list of the features that are your must-haves and like-to-haves. Then, figure out how much you’re willing to spend each month (keep in mind, a good POS system will more than pay for itself with actionable inventory and sales insights).
• Set up a demo: A good POS system makes your day-to-day operations run smoothly. However, that’s only possible if the system is easy to use. Take time to test each software so you know you’ll be comfortable using the interface and the way the features work together will make sense for your business. Most POS companies will set up a demo to walk you through the product and answer any questions. The best companies also offer a free trial so you can test things for yourself.
• Test multiple systems: Narrow your list down to a few systems and set up demos or trials for each one. If you have an established business, bring in your store manager or any other key employees to get their feedback as well since they will be using the software every day and may have some unique insight. There are also different types of POS systems
• Talk to other business owners: If possible, reach out to neighboring businesses or other companies in your network to get some real-life feedback on their experiences with POS systems.

Bottom Line

POS systems make it easy to accept payments anywhere and connect your sales data and marketing efforts directly so you can create very targeted marketing emails and loyalty programs to keep customers coming back for more. Inventory and staff management tools help you minimize shrinkage, spot errors, and control costs across the board. To get started choosing a POS system for your business, read our guide on the best POS systems for small businesses.