What Is a POS (Point of Sale) System and How Do They Work?

A Point of Sale (POS) system is a device you can use to log orders and process sales. It is made up of hardware and software elements, and can also be used to carry out advanced functions like managing inventory, improving customer loyalty, tracking employees, and analyzing business performance.

The best small business POS systems offer numerous ways to maximize efficiency and cut costs, making them a staple for retail and food businesses alike in 2024. In this ‘What is POS’ guide, we cover everything you need to know about the versatile sales device, including how they work, how much they cost, and which systems performed the best in our research. 

Read on to learn more, or use our free tool to compare POS costs today.

What Is a POS System?

A ‘Point of Sale’ (POS) is the system you use to scan or log the items a customer is buying, process their cash or card payment, and generate a receipt.

Unlike cash registers, POS systems are made up of hardware and software components and they let brick-and-mortar businesses do far more than take payments and process orders. For instance, aside from these basic functions, you can use POS systems to improve customer loyalty, create granular performance reports, manage staff and stock, and more.

How Does a POS Work?

Depending on your needs, you can use POS systems to scan products manually or log orders onto the screen. Once the order is placed, POSs let you take payments from the customer, whether this be through cash, card, mobile payment apps, or another method.

Point of Sale systems then log this data, so you can account for each sale and gain a full overview of your sales history. Modern POSs will also house stock information, customer profiles, and other important business data to help you manage a broad range of processes from one central platform.

If your POS doesn’t offer features that you require in-house, you’ll also be able to integrate the system with third-party software to extend its use further. Read our full guide to POS features to learn about what capabilities you should expect.

Different Types of POS

There are many types of POS systems out there. When it comes to purchasing a POS system for your business, the main forms include:

• Mobile and tablet POS systems
• Terminal POS systems
• Self-service kiosk POS systems
• Multi-channel systems (which allow you to sell your goods across multiple sales channels).

POS systems can also be broken down into on-premise, or cloud-based systems, as we explain further down this article.

How Much Does a POS System Cost?

The cost of a POS system depends on a range of factors including the size of your business, your chosen payment model, and your specific hardware and software needs. 

For POS software alone, small businesses with single cash registers can expect to pay around $15 for more modest systems and up to $100 for more feature-rich models. Alternatively, medium to larger businesses with a higher volume of transactions and more complex requirements may need to pay upwards of $100, per month, per location.

To find and compare prices for your business-specific needs you can use our free comparison tool.

How does hardware affect the price of a POS?

The costs of hardware can also considerably bump up the initial price of Point of Sale systems. At the top end of the spectrum, larger businesses that run over multiple premises may need to invest over $10,000 for specialized hardware devices. If a business decides to take orders through a single touch screen device, however, they should be able to cover their hardware requirements for under $500 upfront. 

Which POS systems are in my budget?

If you’re on a budget, there are a number of low-cost and free POS systems to choose from. For example Square POS, our top-rated POS system for restaurants and small businesses, offers a robust free service with advanced sales reporting and inventory management features. However, many free options charge transaction fees instead of asking for monthly payments, so business owners should read the small print before signing up.

Small businesses or hobbyists may opt for a cost-conscious system without the bells and whistles. Larger businesses will likely need to avoid free services in order to receive more complex features.

For more information on how much this tech could set back your business, you can learn about how much POS systems cost. Alternatively, if you’d like to learn more about transaction costs, check out our complete guide to credit card processing fees.

What are the Advantages of POS?

After pouring years into researching the best systems and speaking to businesses about their unique experiences, we’ve found that these are the main advantages of using a POS.

Increased Productivity 

Centralizing all business processes into one system greatly boosts efficiency. With a Point of Sale system you can quickly and easily move from task to task as prompted, while being notified with alerts when inventories need restocking or employees need to be scheduled. Naturally, this boosted productivity will also have a knock-on effect on a store’s revenue, which is more important than ever in 2024. 

Professionalism 

A customer will be more impressed by a sleek tablet with an appealing interface and trim card reader than a dusty, clunky cash register. The effects of the polished demeanor and appearance of a modern POS are tough to quantify, but do help shape customers’ views.

Data-Driven Insights

The data that POS systems collect sheds light on a business’s performance, as well as its weak spots or missed opportunities. Perhaps one employee is under-performing, or customers enjoy one type or color of product above another. Months or years of data collected can reveal insights that allow managers to execute at a level beyond their own instincts.

Collaboration 

Messaging capabilities can allow for rapid communication from within the POS software itself, helping cashiers talk to each other or alert a floor manager, or a restaurant’s back-of-house team interact easily with servers. The result? A well-oiled machine of a store that saves thousands by avoiding costly miscommunication.

Marketing Campaigns

Many of the best Point of Sale systems can collect email addresses when sending receipts, building a ready-made email marketing list. Customers who might have otherwise forgotten about your store or restaurant can be turned into regular customers with a few coupons or gift cards — which, coincidentally, are both additional features supported by top POS systems.

In this review:

• What is a POS System?
• How Does a POS Work?
• How Much Does a POS System Cost?
• What are the Advantages of POS?
• What is POS System Hardware?
• What is POS System Software?
• Additional Features of POS Systems
• How to Choose a POS For Your Business
• Who are the Top POS Suppliers?
• POS Systems by Industry

What Is POS System Hardware?

Every POS system requires a software and a hardware component. The software is typically provided by a specialist vendor and designed to be compatible with most hardware solutions.

Compatible hardware can either be purchased from the same provider, or bought separately from commercial retailers. Only rarely will a system depend on provider-specific hardware elements that won’t be available anywhere else.

Five basic POS hardware components are strongly recommended for any physical store. Today’s typical shopper might not know anything about the systems they use for shopping, but they’ll be familiar with these:

• Credit card reader
• Register screen
• Receipt printer
• Barcode scanner
• Cash drawer

It’s worth noting that smaller businesses can opt for devices that include multiple components. For instance, a mobile card reader might even do all five tasks by plugging into an iPad or phone directly, and sending digital receipts while accepting cashless payments.

However, larger businesses with more specific requirements will need to invest more in specific hardware like barcode scanners and cash draws. 

If you’re able to function on minimal hardware, check out our guide to the best iPad POS systems.

What Is POS System Software?

Point of sale systems can operate using two different main software options: On-premise software and cloud-based software.

• On-premise POS software isn’t connected to the internet. It keeps all the information on a closed system within the store, and must be maintained by the store manager or an IT employee.
• Cloud-based POS software relies on the internet in order to work. They are SaaS, or Software as a Service, which means that store managers must pay a set fee, usually monthly, in order to use a cloud-based service. The upside is that any bug fixes or updates are the responsibility of your provider, not you. Plus, your information is always backed up and can be accessed from anywhere.

Additional Features of POS Systems

While inventory and sales are essential features for any good Point of Sale system, the modern iteration comes with plenty of additional abilities, all aimed at making a store owner’s life easier.

Sales and inventory

First, the basics. Any point of sale system should let you track sales, registering that every item has been sold for the correct price and recording the amount of that item that remains in the inventory. At the end of each day, the system will have an accurate count of the store’s revenue during that period.

Labor management

Another common feature is employee tracking. Members of your team should be able to log in and out, letting the system know who is responsible for which sales. As an added benefit, this feature allows you to track the hours each employee works, which can be useful for payroll purposes. 

Loyalty programs

Most POS systems offer dedicated loyalty programs, too. If you regularly shop at Starbucks or Safeway, you probably carry their loyalty card around wherever you go. It’s a great move for a business, with research from McKinsey revealing that 62% of consumers are more likely to return to a brand after signing up for a paid loyalty program. 

Gift cards

Like the loyalty program, a gift card option can help attract and retain customers, but it also needs to be available as an option through the store’s POS vendor, in order to be accepted.

Mobile-friendly

A mobile app helps you manage orders flexibly, and on the go. While mobile POS apps aren’t a necessity, 54% of US businesses have already used the software to process transactions. 

Mobile-friendly solutions will be especially useful if you’re operating on the move, whether you run a food truck, kiosk, or Farmer’s Market stall.

Check out our guide to the  best POS systems for food trucks to learn more about these industries.

Reports

POS systems let you track data that might otherwise be forgotten, compiling it into reports that deliver insights. With the right details about typical customer behaviors, sales information, or employee habits, it’s easier to improve store efficiency, ultimately helping you to improve your bottom line.

Industry-specific features

In addition to all the above features, different industries may require specialized features. For example, restaurants may require hospitality-specific features like menu editing, kitchen-display systems, and detailed inventory management that tracks each individual ingredient required to make the meals.

Meanwhile, a salon POS system needs to be able to track appointments months into the future, while a system designed for use in a bar or busy cafe needs to run incredibly quickly to keep customers happy. When deciding which POS features to prioritize, we’d recommend understanding your business’s unique needs and working backward from there.

How To Choose a POS for Your Business

Now you have basic knowledge of the POS system definition, the value this type of system offers, and what features you should expect from one. Now all that’s left is to find the best one for your specific business.

Try writing out a list of the features your business needs. Then, once you have the list, look at the top suppliers to find the best fit. Here are a few questions to consider:

• Will on-premise or cloud-based software be more appropriate for your working conditions?
• Are the basic features enough, or will you need something a bit more advanced?
• What payment processors must the Point of Sale be able to use?
• Are there any unique hardware elements you’ll need (such as a self-service checkout)?
• What price range are you comfortable with?

Don’t worry about fully understanding the system immediately: Focus on understanding the features it offers instead. You might not know how to use a touchscreen cash register, but the setup from a high-quality provider should be intuitive, and many suppliers offer online tutorials explaining the process.

If you’re ready to start looking into which POS system is right for your business, fill out our quick and easy form to get bespoke quotes from leading suppliers. You’ll be under no obligation to get started with any of the providers, and it’ll only take a few minutes.

Who Are the Top POS Suppliers?

While this isn’t a comprehensive list, it’s a fast at-a-glance look at the POS vendors that performed the best in our independent research. Alternatively, if you’re looking for a more tailored recommendation, you can use our free matching tool to compare providers and price quotes.

Square

After putting the top through the wringer, our dedicated research team found that Square was the best overall POS. A favorite of small-time vendors everywhere, this company offers free POS apps. In addition, they sell the all-in-one hardware component you’ll need to run their app.

Square is one of the few names on the market systems that the average consumer is likely to have heard of, as their large presence in the industry makes it likely you’ve purchased an item or ten through their service.

Square excels for restaurant and retail businesses alike with its brilliantly easy-to-use platform and versatility. Most importantly, Square charges no monthly fees. Instead, you pay a small percentage of the fee you receive for every transaction you make, meaning you won’t start paying until you start selling.

Lean more about the provider in our Square POS review.

Lightspeed

For larger businesses or vendors handling specific inventories, Lightspeed will likely be your best bet. Lightspeed POS offers a number of standout stock management features, from multi-location tracking and product variants to serial number identification. 

Lightspeed’s business management features give Square a run for its money and unlike our frontrunner, the POS offers a dedicated training mode, making it easier for new workers to get started on the system. 

Lightspeed’s advanced toolkit comes at a premium, though. With its entry price sitting at $69 per month and its average plan costing $119 per month, the POS may exceed the budgets of smaller businesses. But if you’re able to front these fees, it’s sure to provide you with a solid return on your investment.

To learn more about the POS, check out our full Lightspeed review.

NCR Aloha

NCR Aloha is another system that performed outstandingly well in our research. From powerful reporting tools and real-time performance alerts to employee productivity options, NCR is designed to make it easier for restauranters to go the extra mile.

NCR Aloha offers a generous free package with loyalty, onboarding, email marketing features, and 24/7 customer care included. This means that food businesses don’t need to fork out to get access to the system. 

However, the POS doesn’t offer any live chat option. This means if you’re new to the software and require real-time support, providers like Square will be better at meeting your needs.

POS Systems by Industry

POS systems can be tailored to suit industries as specific as nail salons or coffee stands. However, just two types of industries are popular enough to stand out of the pack and warrant mentioning here.

Retail systems offer industry-specific features like refunds, quick-keys look-up, auto stock refills and will be able to integrate with retail hardware like barcode scanners, and weighing scales. They’re designed for any type of retail store selling products from a specific inventory, including:

• Clothes shops
• Pet shops
• Jewelry shops
• Sports retailers
• Electronics stores

Check out our guide to the best POS systems for retail businesses to learn about our top picks.

Restaurant systems offer a number of hospitality capabilities like tableside ordering, tip splitting and food safety checks. This type of POS is aimed at all types of restaurants and food businesses, including:

• Quick-service food businesses
• Cafes
• Bars
• Food trucks, and
• Fine dining establishments

According to our research, these are currently the best restaurant POS systems on the market.