A coffee shop customer holds up her smartphone to a point-of-sale card reader to pay for her beverage.
If your business has a brick-and-mortar location, you will need to invest in some kind of point-of-sale hardware to process customer payments in a variety of ways. — Getty Images/Jacob Wackerhausen

A point-of-sale (POS) system streamlines the checkout experience, allowing your small business to process payments, record customer loyalty points, and update inventory. POS vendors offer flexible solutions for brick-and-mortar and online companies. Although many industries use POS software and hardware, Grand View Research reported that retailers "held the largest share of more than 34.35% of the overall revenue."

But how does POS software and hardware differ from a credit card terminal, and do you need one? We'll cover what a POS system is from components to pricing, how to choose one, and examples of the top vendors in the POS sector.

POS system: Definition, purpose, and components

An electronic POS system processes payment transactions and logs purchases for accounting records. It replaces traditional cash registers or manual calculations at physical locations. E-commerce businesses also use POS platforms to facilitate and track online sales.

POS software programs differ by vendor. Most track sales, print receipts, and run reports. Some let employees clock in and out. POS software may have built-in inventory management tools or integrate with third-party platforms. These systems often allow you to scan QR codes or barcodes during checkout and may update your stock levels.

Brick-and-mortar locations also use POS hardware. The main POS unit can be a stand-alone terminal, a tablet-based system, or a mobile phone. Other components may include a cash drawer, a card reader, a receipt printer, and a barcode scanner.

Most modern POS systems are cloud-based, meaning the software resides on a web server, and the business doesn't have to update it manually. A cloud-based POS can be fixed or mobile. A fixed solution sits on your counter, whereas a mobile POS (mPOS) is an app on a smartphone or tablet.

Grand View Research noted that small to midsized enterprises adopt cloud-based POS software solutions due to their "affordability and scalability." These units work well for tableside or curbside checkouts.

[Read more: 5 POS System Features That Small Businesses Need]

Why small businesses need POS software

A POS system supports your customers' preferred payment methods, speeds up checkout procedures, and is efficient. It also automates manual tasks like calculating discounts or processing a return. Most integrate with accounting and customer relationship management (CRM) programs, automatically transferring client and sales data.

Accepting electronic payments in person and online is almost essential for modern small businesses. Indeed, a Pew Research Center survey reported that "roughly four in ten Americans say none of their purchases in a typical week are paid for using cash."

A credit card terminal processes payments, but its functionality stops there. Most physical stores want additional capabilities, like a database to view pricing information or customer accounts.

A centralized system provides reports about product performance, revenue, and profit margins. Small businesses use historical and real-time data to make informed decisions and identify trends.

Multichannel POS software allows retailers to manage sales across social media, e-commerce stores, websites, and physical storefronts. Using one system means you won't book the same appointment time twice or sell items you don't have in stock.

Most modern POS systems are cloud-based, meaning the software resides on a web server, and the business doesn't have to update it manually.

At a glance: POS vendor comparison

The account-based marketing firm 6sense tracks 208 POS systems. Square has the largest market share (28.83%), with Toast (25.98%) following closely behind. Lightspeed, which sells retail and restaurant POS systems, has 8.42% of the market share, with Clover nearby at 6.87%. TouchBistro, a niche favorite among restaurateurs, has less than 1% market share but ranks higher than Stripe or Lavu.

Here's how a few POS systems for small businesses compare:

  • Clover: Equip your retail store or restaurant with a full-fledged POS system and make monthly hardware payments to reduce upfront costs. Clover provides built-in loyalty programs, flat-rate pricing, and real-time analytics.
  • Square: This company offers free and paid POS subscriptions for retail, restaurant, appointment, or general use. Square has built-in payment processing and many add-ons and partner integrations.
  • Cake: Food and beverage businesses can enable QR codes and online payments with Cake, the all-in-one POS system for restaurants. It provides 24/7 customer service and touchscreen hardware for the front of the house.
  • Toast: The free version includes a complimentary terminal or handheld kit, ideal for cafes or food trucks. Toast's paid packages offer flat-rate payment processing, mobile dining solutions, and menu management tools.
  • Lightspeed: This vendor has POS systems for retail, restaurants, and golf. Lightspeed provides one-on-one onboarding, 24/7 customer support, and integrated Lightspeed payments.
  • Shopify: Build an online store with unlimited products and payment processing, then choose from Shopify POS Lite (online only) or Pro (for brick-and-mortar businesses).
  • TouchBistro: With front-of-house, guest engagement, and back-of-house solutions, TouchBistro's POS plans provide everything you need to run your restaurant.

Types of POS systems

Modern POS platforms evolved significantly from the old-school cash registers of years ago. Still, technology is constantly changing. Today, we consider on-premises POS services "legacy" models. These POS systems were once the cutting-edge technology that replaced outdated methods and revolutionized how retailers and restaurant owners managed in-store sales.

Now, we consider traditional POS systems that save data locally antiquated. Few small business owners want to invest in the steep upfront installation costs and commit to long-term hardware and infrastructure maintenance. While on-premises POS services offer more data control, they don't provide the freedom to run your company from a smartphone or adjust to your company's goals or customer needs.

On the other hand, mobile, tablet, and cloud-based POS systems streamline user training, have minimal startup costs, and scale seamlessly. These contemporary solutions support many business models, making them the preferred option for startups and established companies.

Let’s see how these POS systems compare:

  • Mobile POS platforms: With this type of POS, business owners can carry a complete POS system in their pocket. Android and iOS apps provide POS and payment functionality, enabling solopreneurs, salespersons, and freelancers to accept credit, debit, and mobile payments anywhere.
  • Tablet POS solutions: Like mobile options, tablet-based platforms use existing hardware with iOS and Android apps to process transactions and check inventory. However, many providers also sell accessories like tablet stands and cash drawers, so these units can serve a traditional role while remaining portable.
  • Cloud-based POS systems: These services include a range of hardware and options, depending on your needs and provider. Restaurants may prefer a terminal-based approach with proprietary kitchen, bar, and wait staff equipment, whereas retailers may use a combination of countertop and mobile units.

[Read more: Choosing the Best POS System for Your Company]

POS system pricing

The average cost of POS software ranges from free to over $100 monthly. The subscription fee varies by vendor and industry. For instance, Square POS is free and works for various companies. But food trucks may prefer Toast's free Quick Start bundle, and full-service restaurants with online ordering and delivery may favor Toast's Growth plan, starting at $165 monthly.

According to Tech.co, "Small retail stores can expect to pay $15 to $100 per month for a system with a single cash register." Businesses can buy POS hardware for a one-time fee, use existing hardware (like an iPad or mobile phone), or lease equipment. Stripe said, "POS hardware ranges from $0 to $1,700."

How to choose a POS platform

The best way to pick a small business POS system is to choose one that's purpose-built for your industry. POS software designed for restaurants lets you set a floor plan that looks exactly like your on-site layout, meaning there's less chance servers will put orders under the wrong table. Likewise, POS tools for service-based businesses will support on-premises and online appointments.

Other considerations include the following:

  • Sales channels: Where does your POS need to work? Options may include your website, online store, physical business, mobile phone, social media, and marketplaces.
  • Integrations: What platforms should your POS connect to? These may include your accounting, inventory, e-commerce, invoicing, business phone system, and CRM programs.
  • Hardware: Do you want a fixed, mobile, or combo system? Some POS vendors supply POS terminals, whereas others let you use iPads or tablets.
  • Features: What tools do your team and customers need? Create a must-have feature list to ensure you find POS software that fits your requirements and budget.

POS best practices for efficiency

Your point-of-sale system is a powerful tool with many features and available add-ons. It can help increase profits, reduce waste, and improve customer experiences when used correctly. But it's vital that you and your team understand how to use it effectively.

Put your POS to work by doing the following:

  • Use your POS for multiple processes when it makes financial sense: A POS system can handle customer, inventory, loyalty, delivery, and gift card data, meaning staff can enter or look up information on one platform.
  • Integrate your POS software with business tools: Synchronize your POS with accounting, invoicing, and CRM software to reduce manual data entry and generate more robust analytics.
  • Work with vendor representatives to learn the software: Take advantage of free training or customer support to learn about reporting options, user interface customization, and more to get the most out of your POS software.

[Read more: Technology Platforms Small Businesses Should Leverage]

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