What Is a POS System and Why Do Retailers Need One?

Retail store checkout with Shopify POS

A point-of-sale (POS) system is the hardware and software that enables you to make sales, accept payments, and check out customers. 

Whether you want to open a retail store, pop up shop, sell at events, or out of the trunk of your car, you need a POS system to accept payments and sell in person.

But it can be tough to find the right POS system for your business–especially if your business started online and you're exploring selling in person for the first time. 

That’s why we put together this no-nonsense guide to help. Keep reading to learn everything there is to know about POS systems so you can choose the right one for your business and make running your retail operations as straightforward as possible.

What is a point of sale (POS)?

By definition, the point of sale (POS), or point of purchase, is the time and place in your retail store where transactions are completed. This is also known as the point of purchase. Think of the point of sale as your store’s checkout counter—the place where you check out customers, take payment, and complete transactions. 

What is a POS system?

A point-of-sale (POS) system is the hardware and software that helps your business accept payments from customers and make sales in person. It also routes funds to your bank account after each sale.

Modern POS systems help merchants manage inventory, track sales performance, manage staff, collect customer contact information, and much more. 

The term "POS system" used to refer to your cash register. But today, most POS systems are software-based and can be used on any tablet or smartphone. This lets you serve customers and take payments wherever you are, without needing a cash register.  

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What’s the difference between a POS and POS system?

A point of sale is the physical place where a customer pays for their item. A point-of-sale system is the technology merchants use to accept payment and close the sale. The difference between the two is that a point of sale is a place, while a POS system is a technology. Think of the point of sale as a store’s checkout counter and the POS system as the terminal merchants use to serve customers, accept payments, and close sales. 

How does a POS system work?

At its most basic level, a POS system calculates the sum of the items a customer wants to buy, processes the payment, and modifies your inventory levels to reflect the sale. Here’s what the typical POS system workflow looks like: 

  1. A customer chooses to buy your product
  2. Your POS system calculates the total price
  3. Your customer pays
  4. The point-of-sale transaction is finalized

1. A customer chooses to buy your product

As shoppers browse a store’s products, store staff can look up prices and inventory availability in the POS system. Once the shopper is ready to buy, the store staff uses a bar code scanner to add products to their cart. Some point-of-sale systems, like Shopify POS, let you scan items using your smartphone or tablet camera instead of a bar code scanner. 

2. Your POS system calculates the total price

Once all items are added to the shopper’s cart, your POS system calculates the total cost, including any sales tax, and then updates your inventory count to reflect items sold. At this point, store staff can also apply discounts or promo codes.

3. Your customer pays

To complete their purchase, customers need to use their credit card, debit card, tap card, loyalty points, gift card, cash, or a digital wallet like Apple Pay or Google Pay. They can also do what’s known as a split payment—where they use any mix of the above payment methods to pay for their purchase. 

4. The point-of-sale transaction is finalized

Once payment goes through, you’ve officially made a sale. Next, a receipt of the transaction is either printed or emailed to the customer and you give the customer the products they bought. 

The benefits of using a POS system

Modern POS systems offer far more functionality than administering transactions. They can complete other business functions and inform important business decisions, including:

  1. Centralizing your inventory management 
  2. Collecting and visualizing sales data in real time
  3. Building in-depth customer profiles 
  4. Accepting payments anywhere
  5. Improving in-store sales
  6. Opening new stores faster 
  7. Adapting to changing business needs 

1. Centralizing your inventory management

Whether you store inventory at your stores or in a warehouse, ensuring your stock quantities are accurate as items are received, sold, returned, and exchanged can be time consuming. But managing inventory is critical. 

Inventory is your largest expense when it comes to running your business. Considering US retailers sit on about $1.50 in inventory for every dollar they make, mismanaging inventory can also cause a lot of tied-up expenses. Buy too much stock and you run the risk of dead stock, while ordering too little can cause untimely stockouts

Merchants with both an online and physical store shouldn’t need to manually count and adjust inventory quantities each day to ensure the stock they see online and in their POS system is accurate. Your POS system should connect with your ecommerce platform and ensure that stock quantities shoppers see on product pages—and the stock you see in your back office—reflect what you actually have in stock. 

This is difficult when you use two different systems to manage online and in-person sales. But Shopify POS connects seamlessly with your Shopify online store’s database. Inventory levels are automatically updated as products are received, sold, returned, or exchanged in-store or online. 

By unifying your sales channels and managing your entire business from one platform, you ensure stock levels are accurate in your POS system and on your online store, without needing to spend time manually counting and adjusting inventory quantities. This means you spend less time managing your inventory and more time selling it and growing your business. 

“Since using Shopify POS, we’ve freed up a lot of time that would have otherwise been spent on operations,” says Sophie Rankine, co-founder of elph ceramics. “That’s time we can now use to implement some of the strategies we have while assuring the day-to-day operations run smoothly. 

The amount of times I count inventory is close to never. I still do them, but before, I had to count stock at the end of each day to know how much we sold and update stock quantities customers saw on our website. With Shopify POS, our stock levels sync automatically.

Sophie Rankine, Co-Founder, elph ceramics

Centralizing your store and warehouse inventory also makes it easier to move stock from one place to another (e.g., from your warehouse to a store) when you run low on a product. It also makes ordering inventory less of a guessing-game, which helps you order enough stock to meet demand without tying up capital in inventory that won’t sell. 

💡 PRO TIP: Want to take the guesswork out of restocking? Set reorder points in Shopify Admin to get low stock notifications and ensure you have enough lead time to replenish inventory of a product before quantities reach zero.

2. Collecting and visualizing sales data in real time

Each transaction that goes through your POS system should also feed into your reporting and analytics tools. 

Your POS system should make viewing analytics straightforward. Rather than viewing ecommerce and store sales data in different platforms, you should be able to get a complete view of your brand’s sales and have the ability to filter by sales channel. Having a unified view of your sales makes it easier for you to know which products are moving and which aren’t. 

When choosing a point-of-sale system, ensure it helps you visualize the following data:

  • Online and retail store sales and inventory data 
  • Sales data over a time (day, week, month, year, or custom)
  • Sales by employee (average order value, items per order, gross and net sales)
  • Sales by channel (online store and multiple store locations)
  • Sales by location (store locations and geographic areas where online sales come from) 
  • Sales by product (sales volume, profitability, stock quantity, and percent of inventory sold)
  • Number of orders (broken down by fulfillment stage: unpaid, paid, unfulfilled, fulfilled)

💡 PRO TIP: Analyze your POS data in tandem with your ecommerce data to be more cost effective with your inventory, measure your store’s impact on online sales, repeat purchases, lifetime value, and more.

3. Building in-depth customer profiles  

A POS system should also help you collect, track, and manage customer information. Access to these details can help store staff understand the customers they serve better while fueling your retention marketing and loyalty programs to spark repeat purchases. 

When evaluating your options, make sure the point-of-sale system you choose lets you do the following: 

  • Create customer profiles. Build profiles that store customers’ contact information, purchase history, lifetime value, and notes. 
  • View order history. See everything a customer has bought from you both in-store and online, which can help store staff suggest more relevant products
  • Launch a loyalty program. Build a loyalty program that rewards shoppers every time they buy from you online or in-store. 

📌 GET STARTED: Choose from hundreds of loyalty apps in the Shopify App Store and start rewarding shoppers for purchases they make both online and in-store.

4. Accepting payments anywhere 

Another core function of POS systems is payment processing. When customers buy products, your POS system is what processes that transaction. When paired with the right hardware, POS systems can take the following payment types: 

  • Cash, which is then deposited into your cash register. 
  • Magstripe credit cards, which occur when the customer swipes their card in your credit card reader. 
  • Chip cards, which are credit or debit cards with a near-field communication (NFC) chip to enable tap payments
  • Contactless payments, which can include chip cards and mobile wallet payments using Apple Pay or Google Pay. 
  • Gift cards, which can be either physical or digital and redeemed for in-store or online purchases. 
  • Card-not-present transactions, which are when a customer pays with their credit card without being physically present. These transactions usually happen when customers enter their payment details during online checkout or when placing an order over the phone. 

What separates traditional POS systems from modern ones is mobile payment processing, which lets you serve customers and take payments anywhere you have an internet connection—whether it’s inside your store, at a fair, at a pop-up shop, or anywhere in between.

📌 GET STARTED: Shopify Payments is the fastest way to start accepting payments in-person, online, and on the go. It’s included in all Shopify POS plans, so you can skip lengthy third-party activations and go from setup to selling faster.

5. Improving in-store sales

The right POS features can help you serve customers using multiple channels and make more sales. 

For example, Shopify POS lets store staff send follow-up emails to indecisive in-store shoppers that feature products they were interested in—similar to an abandoned cart email, but for retail stores. While the customer eventually buys the products online, the sale is attributed to the store. This helps merchants quantify the crucial role stores play in product discovery and turn showrooming into sales.  

Offering flexible shipping and fulfillment options is another way to increase store foot traffic and improve sales with your POS system. 

A POS that offers flexible shipping alternatives can minimize the need for returns and exchanges and keep sales strong. That’s why the following pickup, purchase, and delivery options are quickly becoming table stakes:

Buy online, pickup in-store

Buy online, pickup in-store (BOPIS) lets shoppers buy products online and collect their order from whichever store location is convenient. This option helps shoppers get orders fast and save on shipping costs. Orders fulfilled with store pickup also tend to be returned less often, since shoppers can try products in-store before walking out. 

💡 PRO TIP: Set up local pickup in Shopify to start offering in-store pickup as a delivery option at checkout. Pay less on last-mile delivery, speed up fulfillment times on local orders, and drive more foot traffic to your stores.

Home delivery 

After customers buy products in-store—especially heavy or large products like furniture—they don’t necessarily want to carry it with them. As an added convenience, offer home delivery. Or, if an item isn’t available in-store but is at another location, customers can buy in-store and have the item shipped to their home.

💡 PRO TIP: Ship-to-customer order fulfillment is the easiest way to turn your store into a showroom. Rather than being limited to selling products you have in stock, you can sell products in-store and ship them to customers from your warehouse or another store location that has inventory.

Hassle-free returns and exchanges 

Returns are also a great opportunity to make more sales and increase average order value. For example, customers who buy online and return in store can be incentivized to make additional purchases when they come in for the return. Rather than view the return as a lost sale, take it as an opportunity to potentially sell them additional products and, at the very least, build a more engaged customer relationship.

Some brands are viewing returns as an additional touchpoint, offering an extra discount if you use the store credit the same day.

Kyle Monk, Director of Insight, British Retail Consortium

6. Opening new stores faster

One of the biggest benefits of a mobile POS system is that it helps you open more stores—whether it’s a permanent location, a pop-up shop, or a kiosk at an event—in just a few clicks. 

With Shopify POS, there’s no need to go through a cumbersome setup process. Just add a new POS location, download the Shopify POS app on any smartphone or tablet, connect your card reader, and start selling. 

7. Adapting to changing business needs

As you add more products, reach more customers, hire more staff, expand into new markets, and open new stores, you want a POS system whose hardware and software supports your brand’s growth. 

When assessing your POS options, make sure it lets you use apps to extend its capabilities. Using apps, you can customize your POS system to fit your business’s unique needs. For example, Shopify merchants can choose from thousands of apps built by our trusted partners to help them with marketing, bookkeeping, scheduling, invoicing, and more. 

Since these apps work with both Shopify POS and your Shopify website, you can run your entire business from one back office rather than needing to jump between systems. 

💡 PRO TIP: Want help from Shopify experts? Partner with Shopify experts that have knowledge, skills, and experience to help bring your projects to life and grow your business.

What types of hardware does a POS system include?

Every POS system uses POS hardware in some capacity. If you’re only running an online store, you don’t need POS hardware to accept payments, but if you have a physical store, you’ll likely need a card reader, bar code scanner, tablet, and smartphone. 

Here’s a breakdown of the different pieces of POS hardware you may need to run your retail business. 

Common types of POS hardware

  • POS terminal. A POS terminal is the device that your POS software runs on. Mobile POS software can be installed onto any tablet, smartphone, desktop, or laptop computer with an internet connection. 
  • Cash drawer. Unless you only process cashless payments, you’ll need somewhere to put the cash customers use to pay for your products. Cash drawers are a safe, secure place to organize bills.
  • Tablet or smartphone. Both of these mobile devices are popular hardware for retail POS software. With them, store staff can process transactions and accept payments, without having customers wait in line to pay. They’re also handy for inventory management, since retail staff can count and adjust inventory on the go. 
  • Bar code scanner. A bar code scanner reads an item’s product details and is used to ring up sales. They’re also useful for double-checking a product’s price, the amount of inventory you have in stock, and other details. There are two types of bar codes: 1D bar code scanners that can scan traditional bar codes, and 2D bar code scanners that can read QR codes. Some POS systems, like Shopify POS, let you scan a product’s bar code using your tablet’s or smartphone’s camera instead of using a bar code scanner.
  • Credit and debit card reader. This piece of hardware can read debit and credit cards. There are several ways to read a card, including swipe, tap, and EMV chip. You need this for payment processing so you can receive the funds from the customer’s bank.
  • Receipt printer. While receipt printers aren’t always essential, they’re useful if you want to offer customers the option of taking a printed receipt rather than an email receipt.
  • Label printer. There are some instances where you’ll need a label printer—like when you ship a product to a customer’s shipping address from your store, for example. With a label printer as part of your POS setup, you can do that on the spot.
  • Shipping scale. If you ship items to customers, you’ll need a shipping scale to be able to determine the cost of shipping that item and how much you charge for shipping.

💡 PRO TIP: If you want to open a temporary retail location, like a pop-up shop or kiosk at a concert, you don’t need to buy your hardware. Sign up for Shopify’s Hardware Rental Program to start selling quickly, risk free.

What features should a retail POS system have?

Other than the core functionalities, there are other features you should make sure the POS system you choose includes: 

  1. Integrated payment processing
  2. Mobile checkout
  3. Multichannel inventory management
  4. Staff management 
  5. Centralized reporting and analytics 
  6. Flexible order fulfillment options 
  7. Multi-store management
  8. Customer relationship management
  9. Apps and add-ons
  10. Reliable support 

1. Integrated payment processing

Third-party payment processing agreements are notoriously difficult to navigate. With nebulous fees depending on the credit card type, hidden fees, long payout periods, and contracts that lock you in for multiple years, they can make managing cash flow more difficult than it needs to be.  

But Shopify POS comes with integrated PCI-compliant payment processing built for retailers. With Shopify Payments, merchants pay the same low, pre-negotiated rate for all credit cards. 

Boost your store’s sales by offering all popular payment methods—from credit and debit cards to Apply Pay and Google Pay—and track both in-store and online transactions and payouts from Shopify’s easy-to-understand back end. 

2. Mobile checkout

Customers hate waiting in line to pay. But one solution to long queues is bringing your checkout to them. 

With a mobile POS, store staff can look up inventory, process sales, returns, and exchanges, and take payments without leaving the customer’s side. Rather than having to wait in line to pay at the POS terminal, the POS terminal comes to them.

If staff often find themselves serving more than one customer at a time, mobile POS systems like Shopify POS let them save the customer's cart and retrieve it later. This helps staff move from one interaction to the next without losing order details and spending precious time at checkout re-entering products into the customers cart. 

This is the type of hassle-free customer service modern shoppers expect. It lowers friction in the buying process, which results in a smoother shopping experience and greater overall customer satisfaction. 

3. Multichannel inventory management

While many POS systems help manage store inventory, most don’t help merchants manage that inventory across multiple channels, including multiple store locations, their online store, and warehouses. Effective inventory management is critical to running a successful operation—whether you operate one or many stores. 

Choose a POS system that centralizes your inventory into one system so you can manage it all from one place. This will help you order enough stock to satisfy demand while avoiding overstocking, inventory shortages, or tying up too much capital with too much stock. It will also prevent you from having to manually count and reconcile inventory each day to ensure the inventory availability on your online store reflects what you actually have in stock. 

4. Staff management

As your retail business grows, so will your need to hire staff. You’ll serve more customers and offer more services, and your store operations will get more complex. Invest in a POS system that helps you manage teams as they grow. At minimum, your POS should have scheduling and bookkeeping capabilities and give you visibility on each store staff’s performance (their daily sales, average transaction value, and average units per transaction, for example). 

And be mindful of POS systems that limit how many staff accounts you can create. You want a POS system that supports your team’s growth rather than limits it. 

💡 PRO TIP: With Shopify POS, you can assign different roles and permissions and set boundaries on what store staff can do in your POS system without manager approval—like changing a product’s price or applying a custom discount to a sale.

5. Centralized reporting and analytics

Data and reports help you spot trends, capitalize on opportunities, and make decisions with confidence. Your POS system should have built-in data and reports that help you track your inventory, revenue, which products are selling o