Point-of-sales (POS) businesses have been booming in Nigeria for the past few years. According to data from Statista the number of POS terminals in the country grew from 155,000 in 2017 to 1.7 million in 2022.
These days, owning a POS terminal can either be a business on its own or an extra source of income for small business owners.
What Is A POS Business?
A point-of-sales (POS) business is a simple business set up that involves the use of small, portable POS terminals to process transactions. Initially, businesses used POS terminals to only receive and confirm card and bank transfer payments from their customers, but in the last few years, it has grown to become a full-fledged business with many functions.
Instead of standing in long queues at ATM stands or heading into banking halls to make deposits and withdrawals, most Nigerians prefer to use POS terminals, because of their availability on every street.
Running a POS business means charging customers to help them perform transactions like withdrawals, deposits, transfers, paying for airtime, utility bills, and more. As you already know, these are transactions that people perform every day, so there is a lot of money to be made from running this kind of business.
However, it is important to note that the financial institutions that provide the POS terminals also charge some money for every transaction. So, how do you calculate your profit after removing the POS charge? In the next section, we’ll explain just how to.
Calculating POS Business Profit
POS charges tend to vary depending on your provider, as well as based on the type of transaction you’re conducting.
For instance, most POS terminals charge a 0.5% fee on cash withdrawals, capping the fees at 100 Naira for a withdrawal of 20,000 Naira and above. So, you will need to factor this cost into the fee you charge, as well as an additional amount of money that becomes your profit.
Here’s a practical example:
- Imagine a customer makes a request to withdraw 10,000 Naira.
- You decide to charge him 200 Naira as a fee for the transaction – fair, since most POS money operators tend to charge a 2% fee for withdrawals.
- If your machine charges a 0.5% fee, this means you’ll have to pay 50 Naira out of the 200 Naira you’ve charged your customer.
- This leaves you with a profit of 150 Naira for yourself
Essentially, determining profitability in a POS business means being able to understand the charge that the machine will impose, as well as how that charge goes into your price quote. When you take out the machine’s charge from your quote, you’re left with your profit.
Of course, it is also important that you keep an eye out for these machine charges – remember that they tend to vary, so keeping an eye on them will be critical for your business’s survival.
Conclusion
Operating a POS terminal is undoubtedly an attractive business opportunity as you can serve tens to hundreds of customers in a single day depending on your location. And as this business continues to grow in popularity, understanding how best to maintain profitability will also be important for operators. If you’d like to learn more about running a business in Nigeria, don’t forget to signing up to our blog.