There is a trend in the POS software world to charge for the POS software on the basis of a percentage of sales revenue in the business. As the business sells more, the POS software company makes more.
The thing is, the POS software company is contributing as much to the business at $100 a day in sales as they are to the business at $1,000 a day in sales yet at $1,000 a day in sales the POS software company is being paid a lot more.
Here at Tower Systems we are a POS software company. We choose to prove what we sell at a fixed price, so that retailers can budget and know for certain what the overhead is. This lets them bank more money themselves as they grow their business.
We think this is fair.
For any business owner considering a point-of-sale (POS) system, understanding the pricing structure is crucial. While percentage-based pricing might seem appealing at first glance, a fixed monthly rental cost often proves to be a more predictable and cost-effective option in the long run. Here’s why:
Predictability and Budgeting:
- Fixed Fee: A fixed monthly fee provides clear and consistent budgeting. You know exactly what your POS system will cost each month, regardless of sales fluctuations. This allows for easier financial planning and avoids surprises at the end of the month.
- Percentage-Based: With a percentage-based system, your POS cost fluctuates with your sales. This makes budgeting difficult, especially for businesses with seasonal variations or those aiming for growth. A sudden surge in sales can lead to a significant increase in your POS bill.
Cost Control and Growth:
- Fixed Fee: As your business grows and your sales increase, the fixed monthly fee remains the same. This allows you to scale your operations without worrying about additional POS costs eating into your profits.
- Percentage-Based: With a percentage-based system, growth translates to higher POS costs. This can hinder profitability and discourage scaling efforts, as a significant portion of your increased revenue goes towards the POS system.
Peace of Mind and Risk Management:
- Fixed Fee: A fixed monthly fee eliminates the worry of exceeding a certain sales threshold and incurring additional charges. This provides peace of mind and allows you to focus on running your business.
- Percentage-Based: The variable cost associated with a percentage-based system introduces an element of risk. A slow sales month could lead to cash flow issues, as your POS bill remains high regardless of your revenue.
While a fixed monthly fee offers numerous advantages, it’s important to consider your specific business needs. Take your time. Do your research.
We mention this today because a retailer we have recently spoken with is locked in on a contract for their POS software paying a percentage of sales. The business has taken off, doubling in size in a year. This means the cost of the POS software has doubled. They had not expected this increased cost. Some of the growth has come from deals and sales, making margin tight. This is where the percentage of sales approach of POS software companies does not work.
Be aware, informed and careful.
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