What Is a Point-of-Sale (POS) System? Ultimate Guide for Small Businesses
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.
Brigitte is a retail specialist and staff writer with brick and mortar management experience. She is versed in retail sales analysis, merchandising, and buying with an emphasis in retail sales and marketing across platforms. She has a BA in writing from Washington University, St. Louis.
This article is part of a larger series on POS Systems.
A point-of-sale (POS) system is the software and hardware that manage purchase, return, and exchange transactions. It is typically the register, checkout counter, or cash wrap—although the point of sale doesn’t always happen at a counter. The point of sale can also be curbside for click-and-collect orders, on the sales floor through a mobile POS, or virtual through checkout processes on ecommerce sites.
However, POS systems can go beyond handling the checkout process: The best ones include functions like inventory management, customer relationship management (CRM), and analytics. Here’s everything you need to know about POS systems—from how they work to what they can (and should) include to how you can choose one that’s right for your small business.
Want to learn more about the best point-of-sale systems? Check out our winner, Square, and the rest of our breakdown of the Best POS Systems for Small Business.
POS System Functionality
Most simply, POS systems use software to process transactions. When a customer makes their product selections, you can use your POS system to scan the items in via a QR code or barcode, ring up the total, and then process their payment method and print a receipt. Your POS system logs the customer information, changes inventory levels, and tracks sale activity.
Modern POS systems, however, can do so much more than process transactions. As we will explore in the next section on features, POS systems also work behind the scenes to help update on-hand inventory levels, track customer data, aid in your marketing efforts, provide report insights, and more.
Another thing to note about modern POS systems is that instead of the clunky electronic cash registers of the past, some systems are cloud-based. This means that they can operate on tablets, computers, and smartphones either via your internet-accessible account or an app.
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, so you don’t even need a connection.
It’s generally simple to figure out how to use POS systems—with user-friendly interfaces that are often customizable, plus training tools, you and your staff will be able to learn the ins and outs of POS transactions.
Common Features of POS Systems
When searching for the best POS system for your small business, you should start by identifying which features you need—both today and in the future. This will largely depend on the industry you are in, the number of transactions you perform, and the tools you need to support your workflow.
Remember, the specific features your POS will include depend on the platform you choose and the plan you sign up for. Some types of POS systems have more limited or even specialized features—such as table mapping and menu management for food-based businesses, for example.
Click through the graphics below to see just what tools you should be looking for in your POS system based on your specific industry, or check out these guides for more on the top POS systems by sector:
- Best Convenience Store POS Systems
- Best Grocery POS Systems
- Best Retail POS Systems
- Best Vape Shop POS Systems
- Best Liquor Store POS Systems
- Best Restaurant POS Systems
- Best Mobile POS Applications
- Best Salon POS Systems & Spa Management Software
- Best Cafe POS Systems
Sales & Checkout
A good POS system will create a quick and frictionless checkout experience for you and your customers. When you ring sales, you also get options to add coupons, loyalty points, or other discounts, plus options for processing returns and refunds, issuing store credit, and creating gift cards 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. In short, 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
Some of the most user-friendly checkout dashboards are app-based and run from a tablet device. Check out our breakdown of the Best Touch-screen POS Systems for Small Businesses.
Payment Processing
Credit card terminals issue charge reports and reconcile tickets to sales. With POS systems, this feature is included—making your end-of-day simple and quick. The biggest thing you should be looking for in a POS card terminal is that it supports flexible payment options. This means accepting swipe, tap, EMV chips, and contactless methods like Apple Pay.
You should also look for mobile card terminals if you want to conduct mobile sales. Look for encryption methods that securely connect card readers to smartphones and tablets for mobile sales, enable you to accept online payments via your website, and enter phoned-in payments using your POS system’s virtual terminal.
The last piece of the puzzle here is the payment processor or the software that actually charges the card and gets you funds. Some POS systems, like Lightspeed or Shopify, have in-house payment processors included with your POS account. Others, however, require that you integrate your POS system with a third-party payment processor, like PayPal, Stripe, or Square.
If you need a payment processor, check out our breakdown of the top options on the market for both restaurants and retailers.
Inventory Management
Inventory management features are one of the top reasons businesses adopt a POS system. These features help track your stock and make sure that you have the right amount of inventory on hand at all times.
When looking at inventory management systems, you should consider how the software lets you organize your products. Most POS systems let 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 will 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, forecast product demands, store vendor information, track perishable goods, and see segmented performance reviews. If you need to track inventory anywhere, a POS will improve the process.
Lightspeed POS is our top pick for POS inventory management systems. Check out our other picks with our guide on the Best POS Inventory Systems.
Customer Relationship Management (CRM)
Tracking customer contact info, purchases, totals, payment methods, and returns isn’t only helpful in overall sales—but also in 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 be much more successful.
Leverage your CRM data to foster loyalty with a customer loyalty program. Some POS systems, like Lightspeed, even have in-house loyalty programs that are already integrated into their POS plans, but most will require a third-party loyalty program software.
Marketing Tools
Some POS systems will come with built-in marketing tools, like SMS/email outreach or social media integrations. You should consider whether these tools are important to you and your business and which marketing strategies you will use when selecting a POS.
Email marketing campaigns are among the most popular marketing tools within POS systems, as they build and manage your email contact list for you and can distribute messages in bulk. 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 in your order history to email campaigns helps you create far more effective ones. Some also offer solutions for selling on social media platforms, like Facebook and Instagram, and integrated loyalty and referral programs.
Employee & 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 systems also allow you to access or integrate complete payroll management, so your time tracking and payroll tools are in one automated system. There are systems that offer this feature directly, while others offer it through third-party integrations.
Reporting & Analytics
POS systems always come with a reporting dashboard where you can view reports on things like your sales, inventory, staff performance, and loyalty program. Some programs will even offer report insights and suggestions based on the findings. The goal of POS reporting is to give businesses better insights into their performance so that they can make informed, qualitative decisions and improve the efficacy of their business.
At the most basic, POS systems should track every sale in detail, tell you which items are low, which items are top sellers and slow movers, and how long an item has been on the shelf. 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.
Want to learn more about what is included in retail data analysis and what metrics you should care about? Check out our guide to Using Retail Analytics & Top Retail Metrics to Drive Sales.
Centralized Multichannel Sales
A POS system that offers multichannel sales can connect your in-store, online sales, social, and multilocation activities in one convenient, centralized system.
Most POS systems integrate with many online sales platforms or offer one in-house. This integration will sync your sales, payments, customers, and even inventory counts between the in-store system and online sales channels onto your POS dashboard.
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 a credit card reader. If you look at the graphic below, however, you will see that there are other hardware accessories that you can acquire.
In the following section, we will take a look at the hardware options you can choose from:
Understanding 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?
Tip: If you are an established business looking to switch to a POS system from a cash register, you may 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.
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.
You should also remember those industry-specific tools that we explored in the above sections. If you do want to find a solution that is specific to your industry, take the quiz below to get matched with a buyer’s guide full of specialized solutions.
Answer a few quick questions and we will pair you with POS options that fit your business’s needs.
Check out how we evaluate POS systems in the “How We Evaluated Section” of the Best POS Systems for Small Business.
Here are the top 10 things to consider when choosing a POS system:
Price
Always look at the costs—whether they’re monthly subscription, 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 & 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 that many POS systems offer those features, 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 first-hand accounts.
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 transactions 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.
- Make better decisions: You can use the data and information that your POS gathers to make better-informed more-qualitative decisions.
Learn more about the benefits of using a POS system in our guide.
The Future of POS Systems
Over the past few years, there have been major shifts not only in how POS systems evolve the checkout process but also in how they streamline business tasks behind the scenes. 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. In 2020, buy online, pick up in-store (BOPIS) services saw a remarkable 106.9% increase in sales volume—and this upward trend is expected to continue, with more POS systems creating tools for managing BOPIS in the coming months and years.
You can read more about the latest findings around BOPIS in our guide to Buy Online, Pick Up In-store (BOPIS) Statistics for Businesses.
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 tips in mind: always ask for a demo, test multiple systems, and talk to other small business owners to find the one that suits your needs best.
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