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What is a Point of Sale (POS) System? A Complete Guide

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Retailers have a lot on their plates. They must ensure enough inventory is on hand, prepare invoices, create monthly sales reports, and much more.

The good news is you don’t have to complete these vital tasks on your own. A point of sale system can help. In fact, it may be the key to making sure your retail store runs smoothly while growing revenue opportunities.

Point of Sale (POS) System Definition

A point of sale (POS) system allows your customers to pay for the products and services they purchase from your store. It’s generally comprised of both hardware and software components which work together to streamline your payment processes.

Think of a POS system as a hub where you merge everything in your business related to payment, including inventory, sales, and customer management. It performs the functions of a basic cash register, including conducting transactions, adding taxes, creating receipts, and tracking sales. But you can also count on a POS system to assist with more advanced tasks, such as inventory management, vendor communications, and managing the costs of employee labor. If you’re a customer-facing business with fast-moving inventory, a POS system is a necessity in today’s marketplace, especially if you’re a retailer or restaurant.

The Advantages of a POS System

Your business can enjoy the following benefits by adopting a POS system:

  • Improved accuracy
    Cashier mistakes can easily cost a retail business as much as one-third of their profits per year. With a POS system, you can eliminate the need to manually key in items and prices. It significantly reduces the risk of human error and provides far more accuracy than a basic cash register.
  • Simple reporting 
    Reporting can be a daunting task for your business. A POS system can simplify it through reports which provide useful data in real-time. You can use this data to make informed decisions that steer you toward success.
  • Inventory management
    You can also use a POS system to manage your inventory. A quality POS system will offer an easy way to keep track of your product sales and inform you of when it’s time to order more stock.
  • Speedy service
    Speed and convenience are expected by consumers now more than ever before. A POS system can allow you to give it to them by facilitating quick transactions. It’s a great alternative to serving your customers manually. 
  • Additional payment options
    Modern brands need to provide multiple payment options at checkout. Your customers will appreciate being able to use their preferred payment options like a credit or debit card, Apple Pay, Venmo, or Zelle.

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Types of POS Systems

There are two primary types of POS systems: on-premise and cloud-based.

On-Premise POS Systems 

With an on-premise system, the software is installed and held on a server in your facility. It may look similar to a touchscreen monitor or desktop computer. Once you invest in an on-premise POS system, the data it houses is available without ongoing data hosting fees.

On-premise POS systems have some downsides, however. If you want to maintain and upgrade the system, you’ll have to pay for technical support, software licenses, and training fees. An on-premise POS system also requires you to have the physical space necessary to store its architecture, database, and more. These costs can add up very quickly.

Cloud-Based POS Systems

A cloud-based POS system is installed remotely and connected to the internet. When your data is stored remotely, you’ll be able to keep tabs on your business from anywhere at any time. You can also set up your POS system so it updates automatically, saving valuable time otherwise dedicated to manual updates. A cloud-based POS system also helps avoid technical support costs, training fees, and software licensing expenses.

Before you move forward with a cloud-based POS system, figure out who will own the data. Make sure you’re clear on how it’s backed up and recovered as well so you can avoid issues if switching providers in the future. Also, if you experience internet connectivity issues, you won’t be able to access your data until it’s restored.

Other System Types 

In addition to on-premise and cloud-based systems, there are subcategories of POS systems which include the following:

  • Mobile POS (mPOS)
    Mobile POS systems give you the ability to accept payments on a mobile device. This is ideal if you run a food truck, home repair services, or another business which is continually on the go.
  • Retail
    Retail POS systems are designed specifically for retail environments. They let you track customer profiles, offer discounts, sell gift cards, and provide purchase orders.
  • Multichannel
    Multichannel POS systems can integrate with your website, social media, third-party marketplaces, and other channels.

As you explore POS platforms, you’ll notice not all systems are created equally. This is why you’ll need to do your research and consider a number of factors. Think about your industry and business goals — for example, if you’re a restaurant, you’ll likely need a different POS solution than a clothing boutique.

POS System Components

POS systems will typically include the following hardware components: 

  • POS terminal
    The POS terminal is the central admin that controls the entire system.
  • Barcode scanner
    As the name implies, a barcode scanner lets you scan barcodes and add discount codes. It’s often used with retail POS systems and can streamline the checkout process. 
  • Receipt generation
    Most customers prefer to keep a record of their purchases. A POS will come with a printer which generates paper receipts but will usually also provide the option to generate digital receipts.
  • Credit card machine
    With a credit card machine, you can process any payments made by debit or credit cards.
  • Cash drawer
    While many customers prefer to pay with a card, a cash drawer offers a safe, secure place to store funds, checks, vouchers, and receipts.
  • Scale
    A scale is an important feature if you sell products by weight, as it simplifies determining how much to charge customers.

How a POS System Works

POS systems provide the following baseline capabilities.

Keep Track of Inventory

Regardless of whether products are at your store, a warehouse, or a third-party fulfillment center, managing inventory can be a daunting task. POS software helps minimize guesswork and manual errors. You can use a POS system to ensure you have enough products in the right place at right time.

Manage Customer and Sales Data

A POS system lets you collect and track customer information such as customer names, addresses, and order histories. You can use this data to pinpoint your most loyal customers and gain a better understanding of the customer segments you plan to target in the future.

With a POS system, you can also track key sales metrics like in-store and online sales, sales per employee, and sales per channel. This information is essential if you’d like to make informed, data-driven business decisions.

Fulfillment Options

To succeed in today’s increasingly competitive marketplace, you must find creative ways to boost sales. A POS system can make this easier by offering in-store pickup, home delivery, and in-store returns for online purchases. This type of flexibility is a great way to appeal to your customers while diversifying your revenue stream in the process.

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Choosing a POS System

There are countless POS systems on the market. The following tips can help you select the best one for your business.

  • Define business needs
    Almost every POS system out there can help you manage inventory and sales. However, it’s essential to define your particular business needs. Do you need a POS system that accepts various payment options? Is reporting important for your sales team? Look for a system which offers features most relevant to boosting your brand value.
  • Decide on system type
    The industry you’re in will also help you determine the type of POS software you need. If you’re a dog groomer who travels to your customers, a mobile POS is likely the way to go. 
  • Come up with a budget
    POS systems vary in price. While some are basic and less expensive, others are equipped with more modern features and therefore come with a higher price point. Ask yourself how much you’d like to spend on your POS system, as well as what type of pricing model you prefer. Remember that the least expensive option isn’t necessarily suited to your needs.
  • Look into customer service
    Unfortunately, it will cost you money any time your POS software malfunctions. For this reason, consider what you need from a customer service perspective in the event of a system failure. Are you okay with waiting a few days for a response via phone or email? Or is online chat or round-the-clock support a must-have?
  • Features your POS system should have
    Before you commit to purchasing a POS system, make sure it has the following features at a minimum.
  • Inventory management
    Your POS system must allow you to process payments and track inventory. Ideally, it should integrate with your enterprise resource planning (ERP) software so you can receive detailed inventory and customer behavior insights.
  • Customized reporting
    Make sure your POS system can automatically run and create inventory, sales, and accounting reports. These reports are essential to a variety of departments within your business.
  • Multiple payment options
    A POS system which accepts a variety of payment options is critical. Look for a solution which accepts payment virtual options such as Venmo, Zelle, and Apple Pay. This can let you accommodate a wider range of customers.
  • Customer relationship management
    A good POS system should have the capability to record customer information and track their purchases. It’s important to identify what items they purchased, how much they paid for them, the payment methods used, and whether or not they returned what they bought. 
  • Marketing tools
    A POS system should support your marketing efforts. Most options will let you build and update an email list so promotional emails can be sent out to your customers. Some systems may also assist in selling your products on social media platforms such as Facebook and Instagram. 
  • Employee management
    The POS system you select should help you manage your employees. Ensure it lets you set up multiple employee logins so you can set permission levels and track user activity. Scheduling, time tracking, and commission features can simplify employee management workflows. 

Make a POS System a Part of Your Customers’ eCommerce Experience

A POS system can revolutionize your eCommerce experience. By integrating with your eCommerce store, you can eliminate manual data entry, keep tabs on inventory in real-time, offer cross-channel promotions and customer incentives, and support in-store returns and pickups. 

Magento Commerce is an eCommerce platform which integrates with a variety of high quality POS systems. It also offers an array of features which makes it easy to manage customer relations, track sales data and conversion rates, manage inventory, and maintain an omnichannel experience for users across all devices and platforms.

Schedule your free demo of Magento for a demonstration of its capabilities. 

What is a Point of Sale (POS) System? A Complete Guide