Point-of-Sale (POS) System: Definition, Meaning and Cost

A point-of-sale system facilitates transactions between businesses and customers.
Jun 10, 2022

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A point-of-sale (POS) is a system businesses use to accept payments from customers for goods and services either in person or online. It’s a combination of hardware and software that accepts payments, prints receipts and tracks sales. Many POS systems are cloud based and offer additional features.

Although their main purpose is processing transactions, modern POS systems also generate reports, monitor sales, help manage inventory and let employees clock in and out, among other things.

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Deciding factors

Software cost

$0 to $60 per month and up.

Hardware cost

$0 for a card reader to $800 and up for a full register setup.

Payment processing cost

Around 2% to 3% per transaction.

Key features

  • Employee management.

  • Live customer support.

  • Integration with accounting, payroll and website software.

Restaurant features

  • Reservation system.

  • Table assignments.

  • Menu management.

  • Tip splitting.

Retail features

  • Inventory management.

  • Customer relationship management.

  • Returns.

  • Online orders.

How do POS systems work?

Think of POS systems as the modern version of old-fashioned cash registers. When a customer buys something, the POS system calculates the total (along with sales tax), processes the payment and logs the time and date of the transaction. After completing payment, many POS systems also adjust inventory records.

Most POS systems have the following components:

Hardware

  • Cash drawer.

  • Receipt printer.

  • Tablet or alternative touchscreen monitor.

  • Optional: barcode scanner.

  • Optional: self-ordering kiosks.

  • Optional: label printer.

Software

  • On-premises: Sometimes known as a legacy system, this software is only accessible on the POS terminal where it’s installed. It facilitates payment processing, logs sales and labor information and preferably syncs with accounting software. This solution often works for very small businesses that prioritize in-store sales and have only one POS terminal.

  • Cloud-based: This type of POS software syncs information from multiple POS terminals and can often be accessed from mobile devices. Cloud-based POS software offers greater flexibility and may be the better solution for businesses with multiple locations or multiple POS terminals. Popular examples include Clover, Square, Toast and Shopify.

Payment processing

Think of a payment processor as the middleman between financial institutions (banks) and the business receiving the customer's payment. Many POS systems come equipped with an in-house payment processor, which handles card transactions.

Like hardware and software, credit card processing services come with their own fees.

  • Businesses pay a processing fee, which is often a percentage of each purchase plus a flat fee per transaction.

  • Payment processors sometimes charge more to process cards from certain credit card issuers.

Nerdy tip: Businesses that operate entirely online and have no brick-and-mortar location do not need any POS hardware. Their point-of-sale is their website and they would need an online shopping cart or other e-commerce software.

POS Costs and Considerations

How much you spend on a POS system depends on whether you stick with one provider for hardware, software and payment processing or piece together your own system using different providers. Using one provider is usually more convenient because you won’t have to worry about whether everything will work together properly.

Here’s what you should expect to pay for each component of a POS system.

Hardware: $0 and up; around $800 for a full setup.

Smaller businesses and vendors that sell goods at multiple locations or pop-ups might only need a smartphone and mobile card reader as their POS hardware. If you need more than a card reader, hardware will be your biggest up-front cost. For example:

  • Square users can get a free magstripe reader with sign-up or purchase a contactless payment and chip card reader for $49.

  • Toast’s starter kit for restaurants costs $799; it includes a POS terminal, card-tapper payment device and router.

  • Square’s all-in-one register for retail and restaurants also costs $799.

Software: $0 per month and up.

Software can range from a free mobile app to a paid plan with advanced features that can cost over $200 per month. For example:

  • Square has free POS software for businesses that are just getting started, but it also offers a paid plan — $60 per month, per location — for retail businesses that need advanced inventory management and more in-depth reports.

  • Lightspeed’s plans range from $69 to $199 and up per month, which includes the cost of one POS terminal.

Payment processing: Around 2% to 3% per transaction.

Businesses might pay more per transaction for online payments and card-not-present transactions. Some processors might also take a higher cut depending on the type of credit card used.

How to choose a POS system

Popular POS providers offer different hardware and software packages for retail stores, restaurants and service-based businesses.

  • If you run a restaurant, you’ll want the ability to take reservations, assign tables to different parties, manage menus and handle tips.

  • Retail POS systems offer more advanced inventory and customer relationship management features including returns, purchase history and online orders.

  • Features like employee management and live customer support are helpful for any business.

  • A good POS system should also be able to integrate with your accounting software, payroll software and website.

Best POS systems for small business

Square: Best overall

Cost: Free and up for both hardware and software, plus payment processing fees.

Square is a stand-out point-of-sale option for a range of restaurants, retail and service businesses. Its mobile app works on Apple and Android mobile devices so you can make sales on the go, and its transparent, fair pricing makes it a great choice for small and new businesses.

Square POS

Square
Shop Now

on Square's website

Image courtesy of Square.

Shopify: Best for online retailers

Cost: $5 and up for software plus payment processing fees; $49 and up for hardware.

Shopify’s POS system extends e-commerce capabilities into in-person sales. It’s best for online-first businesses, but it does provide hardware options. The system can manage unlimited inventory across multiple sales channels, create discount codes and marketing campaigns, process returns and much more.

Shopify Retail POS

Shopify
Shop Now

on Shopify's website

Image courtesy of Shopify.

Toast: Best for restaurants

Cost: Free and up for software plus payment processing fees; hardware Starter Kit $799.

Toast is made specifically for restaurants, with a range of hardware options including kitchen displays and self-checkout kiosks for guests. The software offers helpful features for food service, including menu tools, delivery and takeout, check-splitting and multiple location management.

Image courtesy of Toast.

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