A point-of-sale (POS) system is a combination of hardware and software that businesses use to process transactions. The hardware can include devices such as cash registers, card readers, barcode scanners, receipt printers, and touchscreen displays, while the software manages sales, inventory, customer data, and reports. The global POS market was valued at $29 billion in 2023 and is expected to more than triple by 2032.

POS systems facilitate transactions, improve inventory management, and help businesses analyze sales trends and customer behavior. Below, we’ll cover the types of POS systems, how they work, how they can help your business, and how to troubleshoot common issues.

What’s in this article?

• What are the types of POS systems?
  
• How do POS systems work?
  
• What do I need to use a POS system?
  
• How the right POS system can help your business
  
• Challenges with POS systems
  
• POS software and hardware costs
  

What are the types of POS systems?

Different types of POS systems cater to different industries and business models, and each has its own benefits.

• Traditional POS systems: Typically found in brick-and-mortar stores, these are fixed setups with a computer, cash register, barcode scanner, receipt printer, and card reader. They require on-site servers and, often, are part of an integrated network.

• Mobile POS systems: These use tablets or smartphones as POS devices. They’re flexible, portable, and often cloud-based, letting businesses conduct transactions from any location. This type of POS system is popular with small businesses, food trucks, and pop-up shops, and at outdoor events.

• Cloud-based POS systems: Also known as software-as-a-service (SaaS) POS, these systems operate through the internet, storing data in the cloud. They offer easy access and scalability, and they often have lower setup costs, which can be ideal for small and medium-sized businesses.

• Self-service POS systems: Common in supermarkets and fast-food restaurants, these systems let customers scan and pay for their items themselves. Self-service POS systems reduce labor costs and increase checkout speed.

• Kiosk POS systems: Similar to self-service POS systems, kiosks are standalone units that customers use to place orders or make purchases. These are often seen in restaurants, cinemas, and airports.

• Multichannel POS systems: These integrate in-store and online sales, letting businesses manage inventory, customer data, and sales across channels. They are ideal for businesses that have a physical and online presence.

How do POS systems work?

POS systems manage numerous tasks—including processing payments and collecting customer data. Here’s how they work:

• Customer selection: Customers select products or services, which they add to a virtual shopping cart in the POS system. They do so by scanning a product’s barcode, inputting the product information manually, or using a touchscreen.

• Cost calculation: The POS system calculates the total cost, including taxes and any applicable discounts or promotions. It can also apply loyalty points or special pricing.

• Payment processing: Once the customer is ready to pay, the POS system processes the payment. If the customer uses an electronic payment such as a credit or debit card, the system connects to a payment gateway to authorize the transaction.

• Receipt generation: After payment, the system generates a receipt, which can be printed or sent to the customer electronically. The receipt lists the purchased items, prices, taxes, and payment method used.

• Inventory management: The POS system updates the inventory in real time, deducting the items sold from the stock. This helps businesses track inventory levels and reorder when necessary.

• Data collection and analysis: POS systems collect data on sales, customer preferences, and inventory trends. Businesses use this data to generate reports, analyze performance, and make informed decisions about inventory, promotions, and staffing.

• System integration: Modern POS systems often integrate with other business software such as accounting, customer relationship management (CRM), or ecommerce platforms. This integration allows for easier data sharing and operation management across departments.

What do I need to use a POS system?

To use a POS system, businesses need a series of core components and optional add-ons that are helpful for specific types of businesses.

Core components

When putting together a POS system, make sure all your hardware components are compatible with your chosen POS software.

• POS software: The software that manages sales, inventory, and customer data.

• POS hardware: The physical components that interact with the system and process transactions. Mobile POS systems often require fewer additional hardware components.

  • Computer/tablet/smartphone: To run the POS software
    
  • Cash drawer: To securely store cash during transactions
    
  • Receipt printer: To provide customers with a physical record of their purchase
    
  • Card reader: To accept credit and debit card payments
    

• Reliable internet connection: A stable internet connection for cloud-based POS systems and for processing card transactions.

• Power supply and backup: A consistent power source for your POS system. Consider buying an uninterruptible power supply (UPS) to protect against power outages and surges, which could halt operations.

• Payment processing account: A merchant account or payment gateway to process credit and debit card transactions. This typically involves a contract with a payment processor and can come with transaction fees.

• Security measures: Security practices to protect customer data and prevent unauthorized access (e.g., secure passwords, limited user access, compliance with data protection standards such as the Payment Card Industry Data Security Standard [PCI DSS]).

Optional add-ons

Some business types might require specific add-ons for their POS systems.

• Kitchen display system (KDS): Often found in restaurants, a KDS communicates orders to kitchen staff.

• Scale: A digital scale integrates with your POS for accurate pricing if you sell items by weight.

• Label printer: A printer allows you to create custom labels, barcodes, or price tags.

• Employee time clock: Built-in time tracking manages employee hours.

Best practices

• Staff training: Train your staff how to use the POS system to process transactions, manage inventory, and handle customer data.

• Backup plan for downtime: Have a plan in case your POS system goes offline. This could involve manual processing methods or backup equipment for business continuity.

How the right POS system can help your business

Choosing the right POS system can improve your business operations, customer relationships, and security practices. Here’s a look at the benefits and considerations:

• Easier operations: A good POS system speeds up transactions and reduces errors, improving the customer experience and reducing stress for your staff.

• Inventory control: POS systems help track inventory in real time, so you know which items are selling well and when to restock. This information helps you avoid running out of popular products or overstocking items that don’t sell as quickly, and it can reduce losses that are a result of theft or mismanagement.

• Payment flexibility: With the right POS system, you can accept a wide range of payment methods such as credit cards, mobile payments, and contactless payments. This flexibility makes it easier for customers to pay the way they prefer.

• Customer relationships: Some POS systems can track customer purchases and facilitate personalized promotions or loyalty programs, building stronger relationships with customers and encouraging them to return.

• Business insights: POS systems can generate reports on sales trends, peak times, and best-selling products. This data is valuable for making business decisions on staffing, inventory management, and marketing strategies.

• Integration with other systems: Many modern POS systems can connect with other business software such as accounting or online sales platforms, reducing the need for manual data entry, minimizing errors, and allowing for more centralized business management.

• Security and compliance: The right POS system facilitates secure payment processing, protects customer data, and complies with industry regulations, reducing the risk of fines, data breaches, and damage to your business’s reputation.

When choosing a POS system, consider these factors:

• Customer support and maintenance: Choose a POS system with reliable customer support to help with technical issues or software updates. Regular maintenance, such as software updates and hardware checks, keeps the system running smoothly.

• Loyalty and reward programs: If your business has loyalty or rewards programs, ensure your POS system can support them. This might involve integrating with third-party loyalty software or using built-in features.

• Compliance with regulations: Depending on your industry, there might be regulations you need to follow. Make sure your POS system complies with these rules, whether they govern data protection, tax compliance, or industry-specific standards.

• Customer-facing equipment: If you need customer-facing displays or self-service kiosks, choose a POS system that supports these features.

Challenges with POS systems

Businesses can mitigate common POS system challenges with careful planning and vendor research and by enlisting ongoing support when choosing and implementing a POS system. Common challenges include:

• Learning curve: Training staff to use the system can be time-consuming and require additional resources. If the system is too complicated, it can lead to operational delays and errors.

• Integration: POS systems often need to connect with other software such as accounting, inventory management, or CRM tools. Integrating these systems can be challenging, especially if they’re from different vendors or lack compatibility. Integration issues can lead to data inconsistencies and additional manual work.

• Technical issues: POS systems can experience technical issues such as software bugs or hardware failures. These problems can cause downtime, disrupt sales, and frustrate customers. Frequent technical problems can also increase maintenance costs and affect business reputation.

• Data security: POS systems handle sensitive customer information, making them targets for cyberattacks and data breaches. Failure to protect customer data can result in financial penalties and loss of customer trust.

• Cost: Implementing and maintaining a POS system can be expensive. Beyond the initial purchase, there are costs for hardware, software licenses, training, and ongoing support. For small businesses with limited budgets, these costs can be substantial.

• Customization and scalability: Businesses need POS systems that can adapt to their needs and scale as they grow. Some systems have limited flexibility or require costly upgrades to expand, which can hinder business growth.

• Vendor support: Not all POS vendors offer the same level of support. Poor customer service, long response times, or a lack of technical expertise can exacerbate problems and lead to prolonged downtime.

• User experience: If the POS system is not intuitive or has a clunky interface, it can cause frustration with staff and customers and slow down business operations.

• Compatibility: POS systems must keep pace with new payment methods, devices, and software updates. Some systems can require costly replacements or upgrades.

POS software and hardware costs

POS software and hardware each come with costs you should factor into your business’s planning and budgeting.

Software costs

• Subscription-based: Many POS systems offer a subscription model per terminal. Monthly fees typically cover software updates, customer support, and cloud storage.

• One-time purchase: Some POS systems require a one-time purchase, the cost of which varies depending on features and scalability. This model often charges additional fees for updates and support.

• Add-ons and integrations: Additional costs can apply for extra features such as loyalty programs, advanced analytics, or integration with other software.

Hardware costs

• Registers and terminals: Depending on their needs, businesses might need to purchase basic cash registers, full-featured POS terminals, or hardware in between.

• Peripheral devices: Businesses might also need components such as barcode scanners, receipt printers, card readers, cash drawers, or tablets and smartphones for mobile POS systems.

• Kiosks and self-service systems: Kiosks and self-service systems can cost up to several thousand dollars each, especially for custom configurations or specialized features.

Additional costs

• Installation and training: All businesses should expect to pay up-front installation costs. Some businesses might also need to pay for staff training.

• Maintenance and support: Businesses will need to pay for ongoing technical support and maintenance.

• Transaction fees: If the POS system includes payment processing, there might be transaction fees that charge a percent of the transaction value plus fixed fees.

• Customization: Customizing the system to meet specific needs can incur additional costs, especially for unique business requirements.