Factors to Consider When Selecting a Point of Sale System

Posted On January 9th 2009, by Richard Cuttler

One of the most critical and possibly frightening purchases a retailer will ever have to make is a point of sale system. It is a critical purchase because it will force the retailer to reexamine their business policies, procedures and plans for the future. It is a frightening purchase because few retailers have experience in selecting a point of sale system and with such a large investment required they will have to live with their decision, be it good or bad, for quite some time. This document lists the essential items that retailers should consider in their POS buying decision.

Determining Your Needs
The first step in picking the right point of sale system for your business is determining your needs. You know best what business processes need to be automated for the greatest return on your investment. Make a list of key business processes and features that you require and prioritize them. For example, are you looking for gift cards, inventory management, integrated credit and debit, accounting integration or customer relationship management (CRM). You should also determine your support requirements. There are almost as many support options as there are POS applications. Again, you know best what your needs are so it is best to make a decision about whether or not you need network support 24 hours a day or just between 9 and 5. Can you wait until the next business day for hardware replacement or do you require someone onsite in four hours or less and lastly do you have your own customer services department to provide level 1 support for your staff or is that a vendor requirement? The more effort you put into the planning stage the better prepared you will be to understand your needs and evaluate your potential options.

Understanding the Elements
While the very term 'point of sale' evokes an image of a stand alone box on a checkout counter, a point of sale system is actually a combination of elements working together. A good point of sale system will likely include hardware, software, transaction processing, network and support. Let's start with the single most critical element, the software.

There are literally hundreds of different software packages available. A quick search on Google will reveal software in a wide variety of price ranges designed for a wide variety of market segments. Software is the most critical piece because it is the element that will deliver the 'feature functionality' that retailers desire; the other elements of the system are present simply to facilitate the software. As a result, the type of software you choose will largely determine the requirements for the other elements of the system. Being the most critical element in the POS system software is also the most expensive. There are plenty of cheap or even free alternatives out there but when it comes to POS software the old adage is true, you get what you pay for. Industry specific packages often ensure that the software will closely map their user's intended operations. While a restaurant business will most likely be better off using a restaurant specific software application, beware that there is often a trade off between just how narrow the focus of the software is and the level of investment the vendor can afford to make in ongoing development. For this reason, a review of general merchandising systems is recommended.

The hardware is the next element of the POS system to consider. The hardware requirements will be largely determined by the selected software. It is best to choose retail specific hardware from a reputable hardware manufacturer. 'Retail hardened' hardware as it is often referred to, is typically more stable and better suited to the retail environment than standard PCs. Be sure to assess your peripheral requirements at this time (scanner, ups, printers, etc.), to ensure your hardware vendor is compatible with all of the essential peripherals.

Credit and Debit
The next consideration is the ability to accept debit and credit cards or transaction processing, which comes in two forms, stand-alone and integrated. Stand-alone debit/credit machines have two major draw backs. They do not communicate with the POS system and they utilize a phone line to transmit data. Integrated debit/credit is connected to the POS and shares the POS system's high speed network connection. The benefits are that transaction data does not need to be reentered at the POS, transactions are processed much faster over the high speed connection and the dedicated phone line as well as its associated costs can be eliminated. The availability of this feature will be determined by the selected software application and if required integrated debit/credit should be included on the list of key business processes and features as outlined in the 'Determining Your Needs' section.

Any business with more than one location will likely need a high speed network connection to aggregate the data across multiple sites. If the stores use a stand alone debit/credit machine then any standard connection will suffice, but if integrated debit/credit was one of the high priority requirements then the Payment Card Industry Data Security Standards (PCI DSS) dictates that you must install and maintain a secure network, meaning you will need a firewall in order to ensure the security of cardholder's data.

The unfortunate reality of dealing with technology is that things do go wrong and when they do, support is required. If the hardware, software and network are all supplied by different vendors you may be forced to do an initial diagnosis in order to determine which element is broken before calling in the appropriate support team. This could lead to 'finger pointing' with no single vendor accepting ownership of the problem. The alternative is to select a 'turnkey solution' where one company is responsible for procuring the required products or services and supporting them. For smaller retailers this is often the best choice as there is only 'one throat to choke' so to speak. If anything goes wrong there is only one number to call and the responsibility of diagnosing and managing the issue through to resolution falls on them. Leading vendors offer 24/7 support which is vital because retail is not a 9 to 5, Monday to Friday business. Once you have determined the hours during which you require support the next step is to determine what level of support you require. Level 1 support typically includes standard support for all user related problems while level 2 support typically means that a more technical in-house resource is required.

The final and possibly most overlooked element of the point of sale system is staff training. This is especially critical given the transient nature of retail store staff. The typical retailer rationale for purchasing a POS system is to streamline processes, increase customer throughput and improve data accuracy but even with the very best system if the employees do not understand it or do not know how to use it properly the business will not realize a single benefit. In fact, a lack of staff training could result in decreased customer throughput, lower customer satisfaction, inaccurate inventories and lost sales. Remember the POS is the last impression you will make on each customer. Budget an appropriate amount of time and money to ensure your staff gets the most out of your new system.

Things to Consider
Once the software, hardware, transaction processing, network and support have been chosen most retailers would consider themselves finished. In reality it is just the beginning. We touched briefly on PCI DSS but it must be reiterated that PCI compliance is not an option it is a necessity. Fines due to non-compliance are designed to devastate a business not penalize it. A similar concern is the ability to accept EMV or Chip and Pin credit/debit cards. These cards will become standard in Canada as of October 2010 and retailers who do not have the appropriate hardware and software to process these cards will be potential targets for fraud, charge backs and fines.

If you currently have an electronic cash register and this is your first automation, be prepared to put in some effort. It is a quite a lot of work to SKU all of your items but the benefits of increased inventory control and reporting abilities more than make up for this effort. If this is not your first automation and you are making the transition from one POS system to another you will have to consider data conversion. If you hope to maintain current customer records, transaction history or any other relevant information it will need to be converted from your old system to your new one. Beware of vendors who agree to data conversion without viewing a sample of your current data first. Data conversion is simple in some instances but more than likely it is a large and daunting task that could require many man hours to complete.

Another consideration should be the viability of the vendors you select. You are not just purchasing a point of sale system; you are entering into a long term relationship with your selected vendors. For the purposes of a point of sale system it may be beneficial to think of the companies you select more as business partners rather than typical vendors. It is critical, especially in these tough economic times, to assess the viability these business partners. Are they making healthy profits or could they be on the brink of cut backs? Will they be able to maintain a strong support staff and continue to release updates throughout the length of your agreement? If you purchase your hardware from a reputable manufacturer such as Hewlett Packard or IBM you can feel confidant that they will continue to support your product but if you buy software from the local computer guy you might have cause for concern.

The final topic is price. When estimating price it is critical to consider the total cost of ownership rather than simply adding the values of the various physical components. This means including maintenance, training and support fees and calculating them over a reasonable life expectancy for your system. There are countless articles on cost justifying and budgeting for technology purchases in the retail industry and the only thing these articles have in common is their author's love of generalizing POS prices. Some experts base the IT budget on a percentage of sales, with percentages usually varying between 0.5% and 3%. Other authors prefer to put a dollar amount on the system anywhere between $5,000 and $25,000 per lane. The estimates for on going support are similarly skewed. Clearly, there is a wide variety of price ranges and the only advice I can offer in this regard is that as much as possible you should let the feature requirements drive the selection process not the price. While that is easier said than done it will result in a significantly more profitable and satisfying experience.

While I have neglected to comment on installation, data backup, un-interrupt-able power supplies, data encryption, financing and countless other elements of the POS system that does not imply that these subjects are irrelevant. In fact, these are all extremely valid subjects but as this article is intended merely as an introduction to the topic of point of sale systems they are somewhat outside of the intended scope and are perhaps topics for a future article. If you have any questions or comments regarding this article or any of the topics covered do not hesitate to contact us.

By Richard Cuttler