POS Systems Introduction
Few purchases can have as dramatic an effect on your retail or hospitality business as a point of sale (POS) system. The right POS system will give you a new level of control over your operations, increasing efficiency, boosting profits, and helping you fine-tune your business model. The wrong system, however, can be a waste of money and a source of ongoing frustration.
Switching from a traditional cash register to a computerized POS system can be difficult - there are many factors to consider and some pitfalls to avoid. However the return on investment and benefits to your business can really make it worth your time and effort.
In the most basic sense, a POS system is a glorified cash register. The most basic POS system consists of a computer, a cash drawer, receipt printer, a monitor, and an input device such as a keyboard or scanner. However, in addition to being more efficient than cash registers, POS systems can create detailed reports that can help you make more informed business decisions.
POS systems save money, provide productivity gains, and can cut down the amount of time you spend away from the primary focus of your business. This POS System Buyer's Guide will walk you through the process of evaluating multiple POS vendors and choosing the right system.
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Do you need a POS system?
As with any significant business purchase, buying a POS system should involve careful research
into what the market has to offer - as well as what your own needs are.
A computerized POS system can provide significant returns if your retail or hospitality business
has annual revenues of around $700,000 to $900,000. Below this level, an electronic cash register
can probably meet your needs for considerably less money.
Some businesses choose to invest in a POS system before reaching those revenue levels. They
may want a POS system simply for the reporting features, or they may see it as an investment
that can boost efficiency starting on opening day. A POS system is rarely totally unnecessary
- most often, the only question is how soon it can pay for itself.
Saving money, getting more control over your business, and being more productive - sounds like
a pretty good combination, right? Here are some of the ways a modern point of sale system can
help your business.
Save money
Eliminate shrinkage. A computerized point of sale system can drastically cut
down on shrinkage, the inventory that disappears from your store or restaurant due to theft,
wastage, and employee misuse. Because employees will know that inventory is being carefully tracked,
internal shrinkage will dwindle.
- Improve accuracy. Whether you use barcode scanning or not, POS systems
ensure that every item in your store or on your menu is sold for the correct price. Your staff
will never mis-enter or guess prices again, and you can change prices with just one tweak in
the computer.
- Get better margins. Detailed sales reports can help you focus on higher-margin
items. By moving items within a retail location or promoting under-performing dishes in a restaurant
setting, you can help boost sales of high-profit items.
Get more information
- Know where you stand. At any point of the day, a POS system can instantly
tell you how many of a particular product have sold today (or last week, or last month), how
much money you have in your cash drawer, and how much of that money is profit.
- Better manage inventory. Detailed sales reports make it much easier for
you to keep the right stock on hand. Track your remaining inventory, spot sales trends, and
use historical data to better forecast your needs. Often, the software can alert you to reorder
when stocks run low. Many store owners who think they know exactly what trends affect them
find a couple of surprises once they have this data.
- Build a customer list. Collect the names and addresses of your best customers
as part of standard transactions. Then use the list for targeted advertising or incentive programs.
Increase productivity
- Reduce paperwork. POS systems can dramatically reduce the time you have to spend doing inventory,
sales figures, and other repetitive but important paperwork. The savings here: time and peace
of mind.
- More efficient transactions. In retail settings, barcode scanners and other POS features
make checkout much, much faster. Restaurants will find their order process greatly streamlined
as orders are relayed automatically to the kitchen from the dining room. In both cases, your
customers get faster, more accurate service.
Keep in mind that realizing these benefits requires a commitment to utilizing the POS system
capabilities to their fullest. Without appropriate training and ongoing analysis, even the most
sophisticated POS system will be no more useful than a basic cash register.
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Hospitality POS vs. retail POS systems
The POS market is divided into two segments with very different needs: retail operations and
hospitality businesses like restaurants, bars, and hotels.
Retail
Of the two groups, retailers have simpler POS needs. Their transactions are completed all at
once, and there is often less variation in the types of products they sell. Some POS features
retailers may specifically want include the ability to support kits (e.g. 3 for $2 deals),
returns and exchanges, and support for digital scales.
A potential complication in some retail environments is the need for a product matrix. Your
POS system will need to support matrixes if you sell items that come in a variety of styles,
like clothing or shoes. For example, matrixes let you create one inventory and price entry for
a particular sweater, but still track sales according to size and color.
Hospitality
Depending on the type of establishment, restaurants and other hospitality businesses have different
requirements from POS systems. Efficiency is the key focus for casual restaurants. For retail-style
restaurants like sub shops, POS systems that relay inputted orders cut down on time-per-transaction
and reduce the errors that can happen when hastily-scrawled orders are passed back to the kitchen.
For quick-service restaurants, POS systems are practically a requirement for living up to their
name: orders taken on terminals in the front are automatically displayed on monitors in the
food preparation area, ready to be quickly assembled and delivered to the customer.
For table-service restaurants and fine dining, POS requirements are somewhat different. They
include the need to be able to create and store open checks, as parties order more over time,
as well as track which server is responsible for which table. The efficiency gains from better
management can be impressive. If a restaurant with 20 tables and an average check of $45 can
increase turnover by one party per table, that is an extra $900 on a busy night.
Well-integrated hotel POS systems allow you to transfer meal charges from the dining room to
guests' rooms with just a button or two. Hotel managers need to be aware that not all POS systems
integrate with all property management software).
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POS system basics
Computer The central component of a POS terminal is the computer than runs
the application. Most resellers prefer to sell you a computer with the rest of the POS system,
rather than having you supply your own - some even charge an extra fee if you supply the computer.
The reason is that setup and ongoing support is much easier when the reseller is familiar with
the hardware involved. Getting all the hardware from one source lets the reseller take responsibility
for the entire system.
If you do want to buy the computers separately, make sure you coordinate the purchase with your
reseller. If you get exact specifications from your POS reseller and follow them closely, you
should be able to avoid most compatibility problems.
POS applications are not that demanding on the computer, so an average to low-end computer will
usually get the job done. - a $500 to $800 computer should be enough to run a POS terminal. The
computer does need to be upgradeable - some POS software requires newer operating systems, such
as Windows XP - so do not try to re-use the old DOS-based machines you have lying around.
Power
Having "clean" electrical power is a POS system necessity that many businesses underestimate.
When you set up multiple POS terminals, they are networked together the same way computer systems
in offices are. Fluctuations in the electrical supply due to blenders, meat slicers, microwaves,
and other mechanical devices plugged into the same electrical circuit can easily cause enough
noise in the power supply to wreak havoc with POS computer systems.
There are two common solutions to the problem. Power filtering can eliminate troublesome spikes
and noise before they get to your computer terminals. The more robust solution is to install
a dedicated circuit with an isolated ground and use it only for your POS systems.
Power problems are one of the single biggest causes of problems in POS systems. Make sure your
vendor analyzes your power situation and suggests appropriate safeguards.
Architecture choices
When choosing your POS system, you may want to look for a system whose software can run on any
type of PC so you are not tied down to a particular vendor or platform. Some manufacturers
use proprietary hardware, which gives you less flexibility to purchase upgrades and additional
equipment from other sources. The primary advantage of proprietary systems is that the software
is written specifically to work with one piece of hardware, ensuring seamless compatibility.
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Point of sale equipment
Keyboards and touch screens
One of the first choices you will have to make about your POS system hardware is whether to go
with a touch screen or a programmable keyboard. Most businesses choose touch screens. The only
market where keyboards are more popular is grocery stores, where the ability to program individual
keys for specific item codes and prices is appreciated.
Touch screens are more intuitive to use than keyboards for many users. They also provide more
flexibility in the user interface and programming. Most touch screens sold these days are based
on flat-screen LCDs instead of traditional CRT monitors. While LCD touch screens are slightly
more expensive (typically $600 - $1,000 instead of $400 - $500), they last longer, use less electricity,
and take up less space. They also look much better. With both CRT and LCD displays, avoid "overlay" touch
screens that are added on to regular monitors - they are more prone to breakdowns and add an
unnecessary complication to your system.
When it comes to keyboards, some models are standard 101-key models that you find with any computer.
Others are smaller, more POS-specific devices, such as the flat-panel membrane keyboards common
in fast food outlets. Often, POS keyboards come with built-in magnetic stripe readers for processing
credit cards. Programmable keyboards usually go for between $150 and $300.
No matter which you choose, make sure you consider the environment where it will be used. Both
keyboards and touch screens are available with varying levels of spill- and dust-proofing.
Scanners
All scanners work in the same basic manner, reading a bar code and sending the resulting numbers
back to the computer. They typically connect to the system through Y-connectors called wedges
that make them function as an extension of the keyboard. Bar code scanning improves speed and
accuracy during checkout.
Low-end scanners are based on charge-coupled device (CCD) technology. These scanners are inexpensive,
but usually have a very short range - the item being scanned needs to be 1 to 3 inches from the
scanner. In a typical retail setting, that should be fine.
Laser scanners, which use a beam of light to read bar codes, offer better scanning ability with
the ability to scan at longer distances. Some laser scanners are "autosensing," meaning they
turn themselves on when an item is placed in front of them, scan the code, and then turn off
again. Omnidirectional scanners send out 15 or 20 lasers simultaneously, letting you scan a bar
code from any angle. And the top of the line are embedded scanners, which are omnidirectional
scanners that are installed below a counter, as is common in supermarkets.
Choose a scanner based on your customer volume. If you do not usually have more than a customer
or two in line, CCDs or entry-level laser scanners should meet your needs. A fairly constant
flow of customers might call for an autosensing model, and very high volume businesses should
investigate omnidirectional or embedded scanners. Prices range from below $100 for the most basic
CCD scanners to $350 or more for omnidirectional laser scanners.
Handheld terminals
The latest type of input device is the handheld, wireless terminal. Essentially a PDA, each handheld
terminal wirelessly transmits orders back to a base station. A distinct advantage for restaurants
is that they increase the amount of time servers spend on the floor taking orders and interacting
with customers, because they never have to go back to a terminal to enter orders.
Newer still are write-on handhelds: instead of trying to compress a touch-screen interface onto
a tiny PDA screen, these devices allow servers to simply write the orders down. Handwriting recognition
software parses the order then sends it on to the kitchen and bar as needed.
Handheld terminals are understandably more expensive than traditional touch-screen order terminals.
However they can make up for the cost by allowing your servers to spend more time upselling more
desserts and drinks. If you are evaluating handheld terminals, make sure you ask about the "drop
test" - units are rated for toughness according to how much of a fall they can survive.
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POS hardware - other peripherals
Printers
Every POS system needs a printer to create credit card slips and receipts for customers. Many
restaurants also use printers to send orders to kitchen and bar staff. There are two main types
of receipt printers: dot matrix and thermal.
Dot matrix printers, also known as impact printers, use pins and an ink ribbon to print on regular
paper. Dot matrix printers are fairly inexpensive, usually $200 - $400. They are better suited
for use in kitchens, where the ambient temperature can be enough to prevent thermal printers
from working effectively.
Thermal printers use heat and special heat-sensitive paper to generate receipts. They are slightly
more expensive, ranging from $300 to $500, but they are faster, quieter, and generally more reliable
because they have fewer moving parts.
Over several years of use, the higher costs for thermal paper are just about balanced out by
the need to buy both paper and ribbons for dot matrix printers.
Cash drawers
Cash drawers are… well, drawers you keep cash in, along with credit card slips, gift certificates,
exchange receipts, and any other important paperwork. The most important thing to look for in
a cash drawer is the sturdiness of its construction. They take a lot of abuse from constant opening
and closing, and they also frequently serve as a shelf for a display or other heavy pieces of
equipment. Look for eighteen gauge steel as a good benchmark minimum.
In most cash drawers, the signal to open the drawer comes from the receipt printer. If you purchase
your entire system from one dealer, you will not have to worry about compatibility, but this
can be a concern if you are purchasing components separately.
Some cash drawers are more easily serviceable than others. Although the life expectancy of a
cash drawer is measured in the millions of cycles, make sure you can replace the rollers, bearings,
and other parts if they do wear out before then. Cash drawer prices range from $150 to over $300.
Customer displays
Also known as pole displays, these accessories show item and price information to the customer.
Some can show advertising as well. There is not much you need to know about displays - take
a look to compare size and how the display looks. You do need to make sure that your software
is compatible with the display's emulation, but again, if you buy an entire system from one
dealer, this will not be a problem. Average pricing is around $200.
Magnetic stripe readers
Credit card processing is handled by the POS software so you do not need a separate credit card
terminal. However, you do need a magnetic stripe reader to read the card itself. Often, keyboards
and touch screens have readers built in; if your input device does not, you will need to purchase
a standalone reader, which will set you back $75 - $150.
Check readers
Using magnetic ink character recognition (MICR), automatic check readers can quickly help you
prevent fraud by verifying essential account information. Since personal checks are becoming
a less and less popular method of payment, few retailers purchase them these days. However,
if you see a significant volume of checks, a reader can be a real time saver. Make sure that
your software supports check verification before purchasing one.
Fingerprint IDs
Security to limit employee access to POS terminals is critical. The two most common methods are
simple PIN codes and magnetic swipe cards, but these are both subject to abuses: PIN codes
can be read over someone's shoulder, and swipe cards can be forgotten by employees, stolen,
or lost. A new add-on many POS systems now offer is a tiny fingerprint ID box - just big enough
for a thumb, the pad ensures that the right employee is able to log on - and no one else will.
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Point of Sale Software
The basic functionality of POS software does not vary much from one package to the next. However,
as you add more features, the software becomes more complicated and costly.
Make sure you know what you need the software to do before comparing long lists of features.
Draw up a list of the factors that make your business unique. What unusual purchasing programs
do you have? Do you offer incentives that require very detailed or specific tracking? A good
POS salesperson will ask you these types of questions to determine what software would be best
for you - do yourself a favor and ask them of yourself beforehand.
Basic features
Most POS software supports a large number of common functions: displaying the items and prices
in a sale, handling taxes, returns, voids, payment options including credit card processing,
layaways, discounts, accounting reports, and inventory tracking. Restaurant POS software allows
creation of checks by diner or table, special orders, tracking orders per server, moving diners
from the bar to a table, waiting lists, and more. It is safe to assume that any standard customer
transaction will be handled by all major POS software.
Capabilities for multiple locations
Some POS software offers an "Internet data board." This is essentially a snapshot of the day's
business that you can access from anywhere with a web connection. For franchises or other businesses
with multiple locations, this can provide significant peace of mind. Other systems can be set
to download daily totals to a central server.
For businesses with branches in different regions, "multimanagement" can be particularly useful.
Multimanagement allows you to share some settings but vary others between sites - for example,
offering the same menu but with different prices in different locations.
Frequent diner programs
POS systems can make frequent diner programs available to small restaurants, which until now
have primarily been in the domain of large chains. These programs, which reward return visitors
with incentives or discounts, are rapidly growing in popularity. Examples include point systems
that work much like frequent flyer miles - each item on the menu has a point value associated
with it. Diners accumulate points that can be later exchanged for a free desert, half price
special, or dollars off their meal. By assigning higher point values, you can give a boost
to high-profit or low-performing items. You can also market to customers based on their typical
purchase or time of visit.
Questions to ask about POS software
- Does it interface with my accounting software? How extensive is that integration - does it
simply an export of journal entries for the day, or is there a thorough integration of the
two programs?
- How easy is it to make changes to the programming? You will need to be able to change prices,
items, and employees regularly - make sure you can comfortably work with the setup interface.
- Does the credit card processing feature work with my current merchant account?
- What type of reports is it capable of producing? Every piece of software will give you basic
reports - ask for samples so you can compare.
- Does it support gift card transactions? How thoroughly - can cardholders check their balances
online?
- Can you make changes in advance? For example, can you create a Christmas menu sometime in
October, and set it to automatically take effect December 1?
- Does it interface with liquor control devices? (LCDs track each pour of a bottle, reducing
shrinkage and free drinks.)
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POS Pricing and how to buy
Most POS systems are sold through resellers, not manufacturers. These resellers have the expertise
to install, program, and support your POS system. Other vendors sell complete systems over the
Internet or the phone - they tend to specialize in less-expensive, one-size-fits-all solutions
that are ready to go as soon as you plug them in.
Costs for POS systems can vary significantly. A full-blown POS system, installed and customized
to your business, can range from $2,500 to $6,000 per terminal, including hardware, software,
and support. You can purchase a complete off-the-shelf system from a discount vendor for much
less - as low as $1,500 - but you will have to install and program it yourself, and will not
have the support you probably need.
Price should not be your most important consideration when comparing POS vendors. The system
will pay for itself in time through reduced expenses and increased sales, so you should be making
sure you get a system that truly meets all your needs. It is particularly important that you
have confidence in the vendor you choose. (See choosing a vendor for more.)
Almost all POS systems are sold outright; very few are leased. POS vendors often have arrangements
with third-party leasing agencies if you are interested in spreading the costs out over time;
you can also simply get a small bank loan to purchase the complete system.
Upgrading POS systems as your business grows is not only easy - it is almost expected. Regular
software updates let you get access to the latest features. Upgrades may be included in your
service contract, or may involve a small additional fee. Adding new hardware - entire new terminals,
or new peripherals for existing terminals - is also generally easy, provided the hardware you
add is compatible with your software. Buying "more of the same" is a good way to make sure everything
connects smoothly.
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POS service and support
Consider what happens if your POS system goes down. Chaos? Closed doors? A blizzard of hastily-scrawled
receipts? While it does not happen often - most reputable POS systems have very good overall
reliability - shutdowns can lead to unhappy customers, lost revenue, and considerable headaches.
The support policies of a POS vendor can easily determine whether you should do business with
them or not.
You should get an in-depth explanation of how your potential vendors handle support. Most will
diagnose problems over the phone first -- many basic problems can be solved this way. Some vendors
have telephone support available 24 x 7, while others are available only during business hours.
Restaurants should lean towards vendors who do have 24 x 7 support, since their busiest times
tend to be outside normal business hours.
For problems that can not be solved over the phone, there are different options for escalation.
Local vendors usually have field service technicians who can come to your location and make repairs.
If they can not fix the problem on site, they should be able to provide loaner equipment that
can keep your business running. Usually you can get a guarantee that site repairs will happen
with 24 hours.
Some vendors do not have field technicians - they may not even have an office in your state.
Often, they will set up direct Internet access to your system, so they can dial in and make changes
remotely. Others will send you a replacement component as soon as you call in with a problem,
then have you send the broken component to them for repair. If you have many terminals, this
is probably fine - you will get your new parts within a day or two. For smaller business with
only a few terminals, losing one for two days may not be an option.
Vendors provide widely varying guarantees. Some provide parts and labor for one year; others
include free phone support for that first year, as well. Many charge per-incident for calls outside
of business hours. Some charge for annual support contracts, and prices range from a cheap $200
to over $1000 per year. In short, there is not much consistency in how vendors structure their
support plans. This can make it hard to compare one to the next, but make sure you do: POS systems
are too critical to day-to-day business to risk underbuying support.
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Choosing a POS dealer
Because of the critical nature of a POS system, choosing a vendor is a big decision - bigger
in many ways than the actual hardware and software choices. Price is an issue, but in many cases
you get what you pay for, so it is worth doing your research before committing to a vendor. Here
are some ways to make sure that your vendor is dedicated to and capable of supporting your business
through any problems you might have.
Support
As discussed here, customer support is critical to the success of a POS installation. Make sure
you know exactly what your vendor provides in terms of response times, replacement policies,
and telephone support. This is the single most important aspect of a POS purchasing decision.
Installation
The quality of a POS installation can have lasting effects on your business. Qualified installers
will not take a standardized approach to installation: they will analyze your needs, test your
existing infrastructure, including power lines, and make sure you get a system that is customized
to your location and business needs. The first week or two of using a POS system will determine
whether it flies or flops, so a well-tested installation is essential. Ask how often the vendor
will be on site during and after your launch - only until the system is running, or will they
come back to check in and answer the inevitable questions that arise?
Experience
As with any major business purchase, potential vendors' experience in the industry is also important.
However with POS systems you can go one step further: investigate how much experience the vendor
has in supplying systems to other companies in your line of business. Dry cleaners have different
needs than liquor stores, and a self-service cafeteria varies considerably from a sit-down
sushi restaurant. Good POS salespeople will ask you about your business, find out what your
particular needs are, then provide a solution that is appropriate for you.
Facilities
Visiting vendors' facilities can be a great way to get a sense of their operation. You will be
able to check out their repair shop and get a sense of how busy they are. You may want to ask
for an organizational chart or a tour of their help desk. Depending on your support needs,
proximity may or may not be important to you - if you plan to rely on telephone support and
shipping components back for repair, it will not matter, but if you expect field technicians
to come to you, distance from the vendor can be a factor.
Demonstrations
Nothing will give you a better sense of how easy a system is to use than trying it yourself.
Some vendors do on-site demos, which gives you the added advantage of being able to see how
the hardware looks in your location. Others will invite you to try the system in their office,
which gives you that facilities tour we discussed. Either way, an in-person demo is strongly
recommended if you are unfamiliar with POS systems.
References
Another familiar way to investigate suppliers for your business is to ask for references to other
customers - make sure to ask for references that are in business similar to yours. Of course,
you will be referred to the vendor's most satisfied customers, but you can still learn quite
a bit from them. Here are some sample questions to ask the references:
- How has the POS system influenced your business?
- What do you wish you had done differently?
- Have you needed any support or repairs? How did the vendor respond?
- Do you know of any one else who uses this system? This can get you additional references
to speak to, some of whom might be more candid.
- If you had to say one negative thing about the system/dealer, what would it be?
Do not be afraid to ask for a reference that dislikes the dealer, as well. Every business has
dissatisfied customers from time to time, and you can certainly learn from them.
Return policies Most manufacturers offers warranties that will enable you to
get repairs or replacements for any equipment failures, but returning equipment is more difficult.
Many vendors charge hefty restocking fees, $500 and up, for returns on complete systems; some
vendors may allow you to exchange individual pieces of hardware for others, but some may not
accept returns at all. Again, make sure you understand these policies before you sign a contract.
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POS buying tips
- Make sure you think through all of your special discounts and promotions before making a
purchase. Those unusual programs can be difficult to accommodate in some software, so make
sure you do the research.
- As with any computer systems, backups are important. Talk to your vendor about creating
automated backup schedules.
- Do not use your POS computers for anything other than POS. Especially resist the temptation
to connect them to the Internet and use them for web browsing or email.
- Preventative maintenance can be important. Simply vacuuming out the cases and lubing and
cleaning printers can extend their lives considerably.
- If you have a little bit of computer ability and think you might be able to put a POS system
together yourself… that is probably a very bad idea. POS systems have to be much more robust
than regular systems, and the issues that can crop up are very specific to POS.
- Most major POS software publishers provide some sort of demo on their web sites - many even
provide a full working version of the software either as a download or on CD. Using the software
on your own can help you evaluate the ease of use and judge how stable and/or buggy the software
is.
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