Case Study: Switching to a Cloud-Based POS For Increased Reliability, Lower Costs

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FederalMerchant: Federal Donuts
Location: Philadelphia, Pennsylvania
Size: 2 Locations
Platform: Square
Cost: Under $1,000
Bottom Line: Reliability and cost are both important factors in a merchant’s decision to switch from hardware to a cloud-based POS system.

As a seasoned restaurateur, Steven Cook already knew that traditional hardware-based point-of-sale systems could be overly expensive and unreliable when he opened Federal Donuts — a shop that sells cake donuts and Korean style fried chicken — in late 2011. What he didn’t know at the time, however, was that there were alternative options for quick-service restaurants.

“[My partners] come from traditional restaurant, full-service restaurant backgrounds, and we are used to hardware based POS systems and traditional credit card processors,” said Cook. “In setting up the first Federal Donuts, it was a very low budget thing. We went with, I guess, an off-brand sort of POS company. It was sort of a disaster.”The Local Stack - callout

Cook says his hardware-based POS system was unreliable and prone to crashing at inopportune times. “When there are customers waiting in line, it takes staff time away from serving customers,” said Cook. “And then, it’s frustrating to customers when you can’t pay with credit cards.”

After hearing about Square from contacts in the local business community, and seeing how well the service was working at a coffee shop owned by one of his business partners, Cook decided it would be worth trying out the cloud-based system at Federal Donuts in the summer of 2012. “Unlike a lot of POS systems that are, in my opinion, not knowing anything about technology, very clunky — a lot of code written on top of code written on top of code — this was something that was fresh and not bogged down by old architecture.”

By the time Federal Donuts opened its second location in late 2012, online functionality had become even more important to the business. Cook and his partners needed a way to log-in and see what was going on in both stores at the same time. Square provided Federal Donuts with the technology to make this happen.

In 2013, when the cloud-based POS vendor debuted Square Stand — a stand built for the iPad that includes a card reader, receipt printer, kitchen printer, cash drawer, and barcode scanner — Federal Donuts was among the first businesses in the country to use the product. “It’s just a more rugged, durable piece of equipment,” said Cook.

According to Cook, Square Stand’s integrated card reader is more reliable than the mobile plug-in version his restaurant had been using previous. Cashiers can swipe cards facing either direction, and the Stand itself can swivel around so customers can sign their own receipts with a finger. “I know we don’t use nearly as much paper as we used to, so there are a lot of benefits,” said Cook.

As far as costs are concerned, Cook has spent significantly less on his Square setup than the hardware-based POS systems he tried in the past. He estimates that he has spent less than $1,000 on Square — which includes an iPad, Square Stand, cash drawer, and receipt printer — compared to the roughly $5,000 per terminal that merchants generally spend on traditional POS systems. “There’s definitely upfront cost savings,” said Cook.

Although Federal Donuts accepts payments with Square Wallet, Cook said consumer adoption is still low. “It’s growing, but it’s not a lot,” said Cook. “It’s not statistically significant at this point.” While there is some correlation between visit frequency and the use of Square Wallet, Cook says adoption is still too low to make any real inferences from the data.

The Takeaway
Cloud-based POS systems provide businesses with a low-cost alternative to traditional hardware-based systems. Although upfront fees were one obvious factor that influenced Cook’s decision to try Square, it was actually reliability, or a lack thereof, that ultimately led Federal Donuts to ditch its existing hardware-based POS system. Vendors are more likely to find success when pitching their cloud-based POS products to merchants when they focus on uptime statistics and ease-of-use, in addition the lack of upfront costs and lower transaction fees.

Stephanie Miles is an associate editor at Street Fight.

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Stephanie Miles is a journalist who covers personal finance, technology, and real estate. As Street Fight’s senior editor, she is particularly interested in how local merchants and national brands are utilizing hyperlocal technology to reach consumers. She has written for FHM, the Daily News, Working World, Gawker, Cityfile, and Recessionwire.