A Guide to POS Terminals for Small Business
by Mark Roy Long | Updated Aug. 5, 2022 - First published on May 18, 2022
When you started your small business, you may have only accepted cash or checks. As your business grows, though, you're leaving money on the table if you don't have a point-of-sale (POS) terminal to process credit card transactions.
Point of sale devices offer features beyond accepting credit card payments. We'll go over those benefits and how POS systems work, so you can see how adding one would contribute to your small business's bottom line.
Overview: What is a point-of-sale terminal?
A POS terminal is any digital device with POS software installed on it: a computer, laptop, tablet, or smartphone. A virtual terminal lets you accept payments over the phone or in other situations where a customer's credit card is not present.
Beyond the terminal, other POS hardware includes:
- Credit card terminal
- Barcode scanner
- Receipt printer
- Cash drawer
Some POS systems allow you to use your own hardware, but others require that you buy their proprietary terminals, hand-held devices, and related hardware.
Benefits of using a POS terminal
The traditional cash register is a classic example of siloed technology: You can use it to ring up purchases and accept cash or check payments, but nothing else. A POS machine does this -- plus accept credit card payments -- but you'll enjoy many other benefits.
1. Increased revenue
A POS terminal will prove its worth where you'll notice it most -- the bottom line -- thanks to these factors:
- Customer convenience: Customers want to use their payment method of choice, which is increasingly credit and debit cards. Accepting these payments also promotes impulse purchases because customers don't have to find the nearest ATM.
- Multiple sales locations: Whether you have standalone POS terminals or use a card reader on your smartphone for mobile payments, conduct transactions anywhere from a brick-and-mortar location to a popup store to a customer's house when making a delivery.
- Better security: Less cash on hand reduces losses if you're robbed, and POS vendors are continually improving online security of customer data and chargeback protections to reduce losses from fraudulent purchases.
Even without the other benefits below, a POS terminal is worth the investment for the extra revenue it generates directly.
2. Sales metrics
A pile of cash and checks at the end of the day does not tell you how you made that money. A good POS system provides performance analytics about your sales:
- Overall sales: Track the total number of transactions, average revenue per transaction, amount of refunds and returns, and your customers' payment methods.
- Product performance: Learn which products are and aren't selling, the days and times they sell best, and how they perform at different price points.
- Employee performance: Identify high-performing employees to inform scheduling, set sales goals, and create incentives.
Data from these areas allows you to experiment with your sales efforts to discover what works best for your small business.
3. Inventory management
The POS system powering your sales terminal provides important information about your inventory at one or more locations:
- Restocking: Set up alerts when inventory is running low. Some POS systems will automatically order more inventory.
- Returns: Automatically update inventory when items are returned.
- Shrinkage and slippage: Track inventory shrinkage due to theft and slippage, and items sold at prices lower than set by management.
Whether you've been tracking inventory on an ad hoc basis or with standalone software, a good POS application can track this within a unified system.
4. Customer management
Every POS terminal transaction captures data to personalize a customer's experience:
- Basic customer information: Use contact information to send order updates to customers, make deliveries, and identify customer product preferences.
- Marketing: When customers opt in, create targeted email campaigns based on their past purchases and other behaviors or demographics.
- Rewards programs: Loyalty programs are an effective way to promote repeat purchases and attract potential customers when your rewards align with their interests.
Your grandfather's cash register sees each purchase as a standalone transaction. A POS terminal and accompanying software enable you to maximize customer lifetime value (CLV), the total projected revenue earned from each customer account.
How POS terminals work
You have two options for your POS terminal based on whether its software is installed on site or is web-based. Day-to-day operation to process sales is the same.
On-site software, installed on the terminal or your own server, used to be the norm, but these systems tend to be more expensive than their web-based counterparts. You don't need an internet connection, though, to process payments with on-site software, and data is stored locally.
Web-based POS terminals are more common today due to their easy setup, which only requires logging into an online interface. You must have an internet connection to process credit cards, and information is stored online in the cloud.
1. Software setup
Before you use your POS terminal, you must set up your POS software:
- Create your account locally, or log into an online interface.
- Add the products and services customers will purchase.
- Add merchant account and payment gateway info for credit card sales.
- Set up sales tax rates.
- If applicable, set up tipping options.
- Customize receipts with business information and your return policy.
- Create employee logins and manage permissions.
- Connect to third-party software.
After the initial software setup, sales interfaces are designed for easy use and require minimal training.
2. Hardware setup
Log into your local or web-based account, and connect any items you're using to the POS terminal, including:
- Card terminal
- Barcode scanner
- Receipt printer
- Cash drawer
3. Process transactions
Once your software and hardware are set up, you're ready to process transactions:
- Scan a product barcode, or select it from your terminal's interface.
- Use a card reader to initiate payment.
- Have the customer approve the purchase.
- Print/email a receipt.
As you process more transactions, you'll collect the information necessary to capitalize on other POS terminal benefits: sales metrics and inventory and customer management.
The best POS terminals for small business owners
Choosing the "best" POS system for your small business depends on multiple factors: sales volume, industry, and number of sales locations. However, the three options below are well worth considering.
1. Stripe Terminal
Stripe is The Ascent's top-rated online payment solution, but it also has a face-to-face retail POS system and can integrate both sales channels into a single system. Stripe Terminal requires the pre-certified card and chip readers it provides. Its data encryption processes are updated automatically through Stripe's remote management tools.
Stripe's mobile card reader is $49, and a countertop terminal is $299. No monthly subscription is required, but you'll pay fees for each credit card transaction. Stripe POS features do not include built-in inventory or customer management, but it offers third-party integrations to add that functionality.
Toast is a restaurant POS system designed to handle front of house, back of house, and flexible menus. Choose from editions for fine dining, fast casual, and cafes that allow you to set up floor plans to track orders.
Toast's bar POS system lets customers purchase drinks at multiple locations within a venue on the same tab.
Toast POS pricing includes a monthly software subscription for each terminal, transaction fees, POS hardware and installation, and add-on integrations. The Toast starter kit, which includes a terminal, card reader, and receipt printer, is $999 plus $75/month.
Lightspeed offers POS software for retail stores and restaurants. Lightspeed Retail is best for mid-size and larger retail businesses, while Lightspeed Restaurant is suitable for cafes, bars, and full-service restaurants.
Lightspeed Retail includes inventory management features that expand the capability of its POS terminal: search for inventory items, set prices, and select sales channels.
Lightspeed does not require proprietary hardware, and its web-based software runs on Google Chrome and Firefox browsers. Lightspeed Retail plans range from $69/month to $229/month, plus transaction fees.
Lightspeed Restaurant costs $69/month to support one POS register, plus transaction fees. If you require more registers, Lightspeed has quote-based plans.
Increase your cash flow now
A POS terminal does more than expand your payment methods. Your small business needs the multiple benefits that come with it -- sales metrics plus inventory and customer management -- to thrive in today's business environment.
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