What is a Point of Sale System? Here's Your Ultimate Guide
Most of you are familiar with point of sale (POS) systems, even if you don’t realize it. They’re the software and hardware that a retail business needs to run their business. From ordering and managing inventory to processing transactions, managing customers and staff, the point of sale is the central hub that helps retailers grow their business.
How consumers shop has changed a lot in the past decade
- 87% of shoppers search for products online before buying
- 71% of shoppers use their mobile device in stores
- eCommerce sales reached $517 billion in 2018, up 15% from 2017
While eCommerce has certainly outpaced the growth of retail, brick-and-mortar retail is still loved by consumers and is their primary shopping destination.
- Brick-and-mortar sales were $3,620 billion in 2018, which makes up 85% of total retail sales
POS systems have enabled anyone, from business-savvy entrepreneurs to artisans who want to turn their passion into their profession, to open a retail store and grow. So let’s get into answering your burning POS questions.
- What is a POS system?
- What is a mobile POS system?
- What is the difference between a POS system and a cash register?
- What kind of hardware is typically used with a POS system?
- What is a POS purchase and POS transaction?
- What is the next step for POS systems?
What is a POS system?
“POS” is an abbreviation for point of sale, which refers to any place where a transaction can happen, whether it’s for a product or service.
For retailers, that’s usually the area surrounding their cash register—where customers exchange money for a product or service. But If you have a mobile POS, your entire store effectively becomes a point of sale (but we’ll get to that a little later).
A POS System is the actual software and hardware you use to manage your business. It’s the tool you use to analyze and order your inventory, employees, customers, and sales.
Traditionally, POS systems were on-premise, which means they used an on-site server and could only run in a specific area of your store. That’s why your desktop computer, cash register, receipt printer, barcode scanner, and payment processor were all set up at your front desk and couldn’t be moved (well, moved hassle-free).
In the early 2000s, a big technological breakthrough happened: the cloud. With the advent of cloud-based storage and computing came the next step in POS technologies evolution: mobility.
What is a mobile POS system?
A result of cloud-based servers was that retailers could start accessing their POS system by picking up any device with internet connectivity—whether it was a laptop, desktop, tablet or smartphone—and logging into their business portal.
A mobile POS system lets retailers manage their entire business from any device, any time.
The democratization of great customer experiences
The result that mobile POS systems had for retailers was enormous. Being able to run their business, serve customers and process transactions from anywhere resulted in reduced lineups to pay and faster customer service. The customer experience that was once unique to big retailers like Apple was now available for everyone.
Mobile POS systems also opened up a ton of new sales opportunities, like opening a pop-up shop or selling at trade shows and festivals.
What are the benefits of a mobile POS system?
- Mobile checkout and payments
- Centralized inventory management
- Real-time access to sales reports
- Advanced customer data
- Schedule and manage employees
- Integrated payment processing
- Manage your business anytime, on any device, anywhere
- Open up new stores, fast
- Customer relationship management capabilities
What kind of hardware does a POS system need?
The hardware products you need can vary depending on your business type. We’ve listed the most common hardware used by the retailer, but keep in mind that not every business needs all of these products.
- POS terminal
- Credit card reader
- Receipt printer
- Barcode scanner
- Cash drawer
1. POS terminal
A POS terminal is the device that the mobile POS software runs on.
For old-school, on-premise systems, the cash register was the POS terminal. For the newer options, merchants can use either a desktop computer, laptop, tablet, or smartphone—any device with internet connectivity.
Many retailers opt to use tablets, like an iPad, with a stand that turns them into a countertop device. The advantage of this setup is in its inherent flexibility. Sales clerks have the freedom to pick up their tablet, look up inventory, access customer profiles, and process transactions anywhere on the sales floor.
2. Credit card reader
This is also referred to as a credit card terminal—it’s what merchants use to accept credit and debit card payments.
There are three ways a credit card can accept payments:
- Reading the card’s magstripe (swiping the card)
- Reading the card’s chip through an EMV (Europay, Mastercard, or Visa)
- Using near-field communication (NFC) to accept payments from mobile payment providers like ApplePay
Most consumers prefer cashless payments. By 2025, Business Insider predicts that 75% of all transactions will be cashless. Why? Because cashless payments are typically quicker and more efficient, which leave the customer with more time to do their thing.
The best credit card reader features
- Print or email receipts
- Take any payment (swipe, tap, or insert)
- POS-integrated payment processing
3. Receipt printer
While the majority of consumers now opt for email receipts, it’s still important to offer printed receipts.
Similarly to cash drawers and barcode scanners, receipt printers can connect to a merchant’s POS terminal via USB or Bluetooth. Most POS system providers can also provide you with receipt printer paper.
4. Barcode scanner
Retailers with a lot of inventory need a barcode scanner to help them manage, stock, and speed up their checkout process. Similar to receipt printers and cash drawers, you can connect a barcode scanner to and compatible POS terminal either by USB or Bluetooth.
5. Cash drawer
To support the customers that still want to pay cash, most businesses need a cash drawer. They generally come in several sizes to support all business types.
As with barcode scanners and receipt printers, most cash POS-compatible cash drawers can connect to the POS terminal either by USB or Bluetooth.
Most POS system providers provide you with a list of compatible hardware and can get you set up with what you need with minimal hassle.
What is a POS transaction?
A POS transaction is the moment where a transaction is finalized or the moment where a customer tenders payment in exchange for goods and services. Any form of payment can be used, such as cash, debit cards, credit cards, mobile payments, and even accumulated loyalty points.
In order for a POS purchase to be completed, a PIN number, signature or for newer mobile payment technology, a fingerprint scan usually needs to be authenticated before an authorized transaction can be made.
The authentication information from the PIN number or other security features then travels through the ATM networks until it reaches its destination–the issuing bank. At this point, the bank can either authorize it or deny it depending on the transaction type and how much funds are available in the cardholder’s account.
What are the key features of a POS system?
With the internet boom and consumers adopting smartphones at an explosive rate, a host of new POS functionalities and features have emerged to help independent retailers offer the connected, omnichannel shopping experience that consumers love.
Key features to look for in a retail point of sale:
- Omnichannel selling capabilities
- Integrated payment processing
- Customer relationship management (CRM)
- Inventory management
- Staff management
- Multi-store management
- Advanced reporting
- Integrations and add-ons
- Ongoing support
1. Omnichannel selling capabilities
Customers habitually research products online before they ever step foot in your store. When they walk through your doors, the majority of them already have a good idea of the product they want. That’s the kind of omnichannel retail experience that customers have grown to expect.
Omnichannel shopping experiences start with having an easy-to-browse, transactional online store that enables them to research products. It ends with having an equally convenient in-store experience.
As a result, an increasing number of retailers adapted to their clientele’s behavior by choosing a mobile POS system that allowed them to run both a brick-and-mortar and eCommerce store from the same platform.
This enables retailers to look up whether or not they have a product in their inventory, verify their inventory levels at multiple store locations, create special orders on the spot and offer either in-store pickup or direct shipping.
As consumer technology evolves and consumer behaviors change, mobile POS systems are increasingly focusing on evolving their omnichannel selling capabilities and blurring the lines between online and in-store retail.
The benefits of an omnichannel point of sale:
- Sell both online and in-store
- Increased store visibility online
- Customer-focused retail experience
- Multiple order fulfillment options
- Synchronized online and in-store inventory
2. Integrated payment processing
Here’s a quick breakdown of how most people feel when they read a third-party payment processor contract:
Between managing an online store, brick-and-mortar store, order fulfillment, inventory, customers and employees, being a retailer is more complicated than it’s ever been.
In an effort to make retailers lives easier, mobile POS system providers started taking payment processing in-house, officially removing complicated (and potentially risky) third-party payment processors from the equation.
The advantages for retailers are twofold. First, they can work with one company to help them manage both their business and it’s financials. Secondly, the pricing is far more straightforward and transparent than with third-parties. Retailers benefit from one transaction rate for all payment methods and no startup or monthly fees.
The result is that retailers get to keep more of their money while removing any complexity associated with payment processing.
The benefits of POS-integrated payment processing:
- Fixed transaction rate
- Built-in PCI compliance and fraud prevention
- No third-party accounts required
- Centralized business financial information
3. Customer Relationship Management (CRM)
Your POS CCRM database allows you to create a profile for each of your customers. In those profiles, you can keep track of the following information:
- Payment information
- Payment history
- Favorite products
- Purchase history
- Shopping frequency
CRM databases also let retailers set up timed promotions (when a promotion is only valid for a given timeframe, after which the items on promotion revert back to their original pricing).
Loyalty program add-ons
Some POS system providers also offer a mobile app-based loyalty program.
83% of consumers say they’re more likely to buy products from a business with a loyalty program—59% of which prefer ones that are mobile app-based. Surprising? Not really.
The use-case for retailers implementing a loyalty program is simple: to show customers that you value their business so that they feel appreciated and keep coming back. You reward their repeat business with incentives like percentage discounts and other promotions that aren’t available to the general public. It’s all about customer retention, which is up to five times less expensive than attracting new customers.
Paired with a CRM database, loyalty programs enable retailers to take their customers’ purchase history and market them with relevant offers by email, social media, or any other communications channel.
Why are CRM and Loyalty add-ons valuable?
When you make your customers feel like their business is appreciated and consistently suggest products and services that align with their needs, you increase the likelihood that they talk about your shop with their friends.
Your customers become your shop’s ultimate cheerleader, speaking positively about you within their social circles and essentially attracting new customers for you.
4. Inventory management
The resources you spend on inventory can’t be used to grow your business, so it’s important to be smart about what and how much inventory you buy.
Inventory is one of the most difficult balancing acts retailers face, but it’s also the most important thing to master as it directly impacts your cash flow and revenue.
POS systems typically have robust inventory management functionalities that simplify how retailers purchase, categorize, and sell their inventory.
With real-time inventory tracking, retailers can trust that their inventory levels—both online and in their brick-and-mortar store—are accurate.
To go along with real-time inventory management, there are a host of inventory management features in a POS:
- Special orders
- Work order management
- Integrated vendor catalogs and purchase orders (POs)
5. Staff management
Your POS should let you set custom permissions for managers and employees. With this, you can control who has access to your POS’ back end versus those who can only access the front end.
You should also be able to schedule your employees’ shifts, track the hours they work, and generate reports that detail their on-the-job performance (like seeing how many transactions they process, their average items per transaction, and their average transaction value).
You can even generate end of day reports that detail your overall sales per employee, per shift.
The best staff management features to look for:
- Schedule your employees
- Monitor each employee’s performance
- Assign specific user permissions
6. Multi-store management
One of the biggest advantages of a mobile POS is that it can support your business’s growth from one store to many.
Consolidate your inventory, customer, and staff management across all locations so that you can manage your entire business from one place.
The benefits of multi-store management:
- Manage your physical stores and eCommerce store from in one place
- Add stores, users, and cash registers to your POS as you open new locations
- Create a single purchase order (PO) for all locations
- Access customer data across all locations
- Transfer items between stores
- Compare store performance
7. Advanced reporting
Intuitive sales, inventory, and employee reporting enables you to turn insights into action and run your business smarter.
A mobile POS should offer a variety of preset reports that give you insight into your store’s hourly, daily, weekly, monthly, and yearly performance.
Armed with that information, you can reduce labor costs, increase your inventory’s return on investment (ROI), predict high-volume sales periods, identify your star employees, and much more.
8. Integrations and add-ons
Integrations and add-ons extend the functionality of your POS beyond what its core features are.
Check your POS app marketplaces to find add-ons and integrations for:
- Inventory management
- Warehouse management
- Order fulfillment
And much more.
9. Ongoing support
Even if your POS is intuitive and easy-to-use, you’re bound to get stuck and have questions at some point. And when you do, you’ll want 24/7 support to help you fix issues fast.
POS system support teams can typically be contacted via phone, email, and live chat.
Along with on-demand support, consider whether or not the POS provider has supporting documentation like webinars, video tutorials, and support communities and forums where you can chat with other retailers using the system.
Which POS is right for your business?
The POS you choose has a big impact on how you run your business day-to-day, and how you grow your business year after year.
There are a lot of options out there, so take the time to research and find the right fit for you.