There’s a lot of technology involved in running a retail business. A point-of-sale (POS) terminal, however, is the most important.
It’s the central hub through which every transaction your business does takes place. Beyond just processing purchases and payments, it’s also the source of critical data that can influence major business decisions. That’s just skimming the surface of what a POS terminal can do.
What is a POS terminal?
A POS terminal is a combination of hardware and software that, at its most basic level, processes all of your store’s transactions. With a POS terminal your store can sell products, accept various payment methods, collect critical business data, and simplify operations.
POS stands for “point of sale,” which is both literally where the sale takes place and shorthand for this software and hardware combination. A POS terminal is also referred to as a POS system, or just a POS.
POS terminals are made up of several key components, including:
- A smart device, like a tablet or smartphone, that runs the POS software.
- A barcode scanner, which can be paired to the terminal.
- A payment terminal, also known as a card reader, which processes all kinds of payment methods, including credit cards, gift cards, and mobile payment options.
- POS software, which enables these tools to work together and performs all of the functions listed in the next section, and many others.
How does a POS terminal work?
Now you understand what a POS terminal is composed of. Here’s a deep dive into how these components work together to help you run your store.
Look up product and inventory availability
A POS terminal stores your product catalog and automatically updates inventory quantities when a purchase is made. To check product availability, you can either scan the barcode on the product or search for the item using its name, SKU number, or a keyword.
Add items to a customer’s cart
Adding items to a customer’s cart is easy with a POS terminal. Just like when you look up item information and availability, you can add products to an in-store order by scanning their barcodes or searching for them in the POS system.
After you’ve added all of the items a customer is interested in to the POS at checkout, the POS will calculate the subtotal and total after tax and discounts have been applied.
Accept payments and complete checkouts
When the customer finds out their purchase total, they pay via their preferred method (of the payment types your POS terminal accepts). Then, the POS processes the payment. This can involve the card reader verifying a card payment or the cashier accepting cash and giving back change. At the end of the transaction, the customer receives a receipt as proof of payment.
Manage daily store operations
A POS terminal does so much more than just complete sales; it’s an essential part of a store’s daily operations.
A POS system can, for example, assist with inventory management by letting staff know what’s in stock and how much of each product is left. A POS terminal can alert you when you’ve reached your reorder point and can automatically place replenishment orders.
Reporting is another way POS terminals facilitate operations. The POS collects data about every transaction and product. It can learn a lot about your business, such as which products are the most popular, when the store is the busiest, or which of your staff members is responsible for making the most sales. Use these analytics to reach the right business decisions faster.
Access customer information
POS terminals don’t only collect data about your business. They also gather information on your customers, like purchase history, frequency, and order size.
This data is useful for marketing purposes. You can use it to send customers offers they won’t be able to resist. For example, if a customer purchases a video game console from your store, you can use that purchase history information to send them offers for games and accessories compatible with that console.
Customer data can also be used to enhance the shopping experience. When a sales associate can look up a customer’s past purchases, they can offer personalized recommendations. For example, a sales associate at a shoe store can show a returning customer new arrivals that are similar to models they’ve purchased in the past, and bring out the right size without being asked.
Types of retail POS terminals
There are two main types of POS systems: cash wraps and mobile POS terminals. While cash wraps are the long-established POS system, mobile POS terminals are gaining popularity. Many retailers are opting to use a combination of both at their stores.
Here’s an overview of the similarities and differences between cash wraps and mobile POS terminals.
Cash wrap POS terminal
A cash wrap is what we traditionally think of when we think of a POS terminal: a stationary checkout point. A cash wrap setup consists of a screen (usually as a tablet), card reader, barcode scanner, cash drawer, and receipt printer.
Depending on its size, a store may have one or more cash wrap terminals. These terminals stay in one place.
Mobile POS terminal
This alternative to a stationary cash wrap is becoming increasingly popular among retailers and their customers. As the name implies, mobile POS systems usually run on small, handheld mobile devices for maximum convenience.
They have all of the same features as a cash wrap, but without the cash drawer. You can still collect cash payments with a mobile system if you have a cash register somewhere in your store.
Mobile POS terminals let you help customers while they shop, give personalized recommendations, and look up inventory without interrupting the shopping experience.
How to choose the right POS terminal for your store
Which type of POS terminal is right for your business? Is it a cash wrap, a mobile POS, or a combination of both? Consider what kind of checkout options you want to give customers, the payment types you want to be able to accept, and how much you want to spend on your POS terminal to find the best fit for your store.
Store checkout options
First things first, do you want to offer customers a traditional, stationary checkout experience, or do you want to give them the option to check out from anywhere in the store? Or do you want to be flexible and let customers check out however they’d like?
Customers are familiar with the experience of a cash wrap POS terminal. Shoppers know to take the items they’re interested in to the checkout counter. For stores that want to offer this familiar experience, cash wraps are a good option. All transactions, including looking up inventory information, happen at the cash wrap.
With a mobile POS terminal, every employee turns into a walking checkout point. Staff can approach shoppers to help them find items they need and make personalized recommendations by looking up the customer’s purchase history. Then, when shoppers are ready to pay, they don’t need to queue up at the checkout counter. Instead, they can finish the transaction with the employee through their mobile POS.
A hybrid checkout option is a great option for stores that want to ease customers into a new shopping experience. Customers will still get the familiar checkout experience, but can also receive enhanced assistance from staff anywhere in the store. This model is also a good idea during busy seasons, like the holidays, when lines can get long at the checkout counter. When every employee is equipped with a mobile POS terminal, they can bust lines with ease.
Accepted payment methods
Next, think about which payment methods you want to be able to take at your store.
The benefit of a traditional cash wrap POS terminal is that they usually come with cash registers, which enable you to accept cash payments. However, storing cash on premises can make your business vulnerable to theft.
With a mobile POS, you can accept non-cash payments like credit cards, gift cards, and digital wallets. These are faster and safer payment methods than cash.
However, with nearly 5% of Americans and 3% of Canadians unbanked, not accepting cash can exclude some customers. You can mitigate this problem and use mobile POS terminals by adding a cash drawer to your store.
The final thing you should consider when choosing a POS terminal is its cost. Different setups have different price tags, and they can vary a great deal.
A cash wrap POS terminal setup is usually the more expensive option. Below are the hardware costs you’ll incur with a traditional POS:
A build-it-yourself mobile POS terminal setup is more cost efficient than a cash wrap. You’ll just need a smartphone (which typically costs several hundred dollars, depending on the device) and a card reader (starts at $49).
The most cost effective option is an all-in-one mobile POS terminal. Shopify POS Go, for example, costs $399 in the United States and is equipped with everything merchants need to transact, manage inventory, gather customer data, and more.
These are just the hardware costs for a POS terminal, so make sure to save room in your budget for POS software costs. At Shopify, POS software starts at $29 per month.
Which POS terminals are compatible with Shopify POS?
If you’re already a Shopify or Shopify POS customer, or are interested in becoming one, you probably want to know what kind of POS hardware is compatible with Shopify’s software. Fortunately, you have multiple options.
POS Go is Shopify’s all-in-one mobile POS terminal. It’s the most affordable POS terminal that’s compatible with Shopify’s POS software, and is also the most convenient to purchase. Instead of buying a smartphone, POS software, and card reader separately, you get everything you need in one compact device. The best part is it costs only $399 for US merchants.
With POS Go, you can do everything you can with a large cash wrap terminal, but in the palm of your hand. You can look up products, scan barcodes, issue digital receipts, access reporting, and much more.
If you want a traditional cash wrap terminal, the most convenient option is buying all of your POS terminal devices from Shopify. Shopify’s Retail Kit is guaranteed to work with Shopify software. This hardware setup is optimized to help you run your business with ease.
Build your own POS hardware setup
Another way to find POS hardware that’s compatible with Shopify POS is to buy individual devices from different sellers and piece together your own terminal. This can be a cost-effective option if you’re able to find discounts from vendors or purchase refurbished products. Just make sure to check that the products you’re buying are compatible with Shopify POS before making the investment.
Wrapping up: What is a point-of-sale (POS) terminal?
A point-of-sale terminal is the central hub for all of your store’s transactions. It’s the hardware-software combination that lets you look up products, collect payment for purchases, store customer information, gather business data, and much more. From mobile POS terminals to stationary cash wraps, and a la carte hardware setups to out-of-the box solutions, you have many options. Whatever your business needs are, Shopify has a POS terminal solution for you.
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