What Is SKU And How It Helps Your Business Management?

what is sku

Whether you are preparing to launch a business or looking for a better way to manage your products in the long run, you should get used to the term SKU. There are certain benefits to having a strong SKU architecture for your business. But what is an SKU? Why do you need an SKU? And how should you use them? This article will help you understand everything about SKU to help you make the best use of it.

What Is SKU?

An SKU stands for Stock Keeping Unit, a unique set of numbers and letters used to differentiate and keep track of products’ stock levels internally.

SKU numbers are usually made up of an alphanumeric combination of eight-or-so characters to track the product details, price, and product manufacturer.

Businesses use SKUs to track and identify their products. An SKU can ensure no confusion between products since each permutation has only one code.

sku meaning

Examples Of SKUs

An SKU code includes both numbers and letters, which is easy to read at first glance and contains essential information.

For instance: 

  • A black cotton T-shirt, size small: TS0150706992
  • A white leather coat, size medium: C-LEA-ME-WH
  • One kilogram of rice from Thailand: TR00421IHT
  • One kilogram of Australian beef: BE-1KG-AUS

Why Is SKU Important?

Having SKUs for your products is essential to ensure you have straightforward, easy management of your production chain, inventory tracking, and sales. An SKU can be used for a lot of reasons, namely: 

  1. Track your inventory

You need to know how many products are available in stock. It’s not a difficult task to determine your product availability with SKUs.

2. Ensure easy stocktakes

Organizing and identifying products using SKU make it very easy to ensure the stock levels at a business’s storage room.

3. Optimize your product categories management

Products categorized by SKUs are better organized and easier to find, making product category management much simpler.

what does product SKU mean

4. Monitor your profits

The fact that SKUs provide you with detailed insight into your inventory levels and sales trends means you get to know which products have the highest sales, and you can lean into the products that have the most demand.

5. Identify shrinkage

Inventory shrinkage is a common problem that many e-commerce business owners face. Fortunately, SKU can categorize inventory neatly, meaning areas of lost, missing, and damaged products can be isolated and fixed.

6. Restore your inventory

With SKUs on every product, you can determine the threshold limit and restock point, which is much more cost-efficient for your business. You only restock when you need to, and the inventory holding costs are cut down.

7. Give product recommendations

SKUs help enhance customer encounters on e-commerce platforms. For example, when a customer looks for a specific fridge whose identifying traits have been assigned a unique SKU, the shopping platform can suggest other fridges similar to the one they are viewing.

What Are The Benefits Of SKU For E-commerce Business? 

SKU numbers play an important part in improving product catalog management, with valuable benefits for your e-commerce business, such as:

  • Analyze buyer behavior
  • Forecast sales level and trends
  • Decrease the risk of running out of stock of the products that customers love most
  • Improve your productivity and ensure an efficient business
  • Help you track your inventory easily
  • Minimize theft since you can quickly narrow down missing items with SKUs
  • Encourage your customers to buy more
  • Improve your customer service
  • Improve customer loyalty and satisfaction
  • Bring your catalog management to a new level
what is a SKU number

SKU Vs. UPC – What Are The Differences? 

SKU and UPCs are two identical lines of numbers on the back of a product. While they may look similar to each other, they serve different purposes. Here are the main differences between an SKU and a UPC:

Length

  • An SKU: from 8 to 12 characters
  • A UPC: must be 12 characters

Composition

  • An SKU: numbers and letters
  • A UPC: Only numbers

Purpose

  • An SKU: to serve business’s needs
  • A UPC: to identify manufacturer and item

Price

  • An SKU: free
  • A UPC: $250 for 10 codes

Use range

  • An SKU: internally
  • A UPC: Universally

How to create

How To Create SKU Numbers

Once you understand how important SKU numbers are, let’s discover how to create them by following these steps:

Step 1: Use a top-level identifier to start the SKU numbers

You should start an SKU number with a top-level identifier such as a department, product category, or even brand, Adidas (AD) or Nike (N). Doing this will help you realize the location of the products in your store at a glance.

Step 2: Assign unique identifiers with the middle numbers

It is good to assign unique features such as colors, sizes, item types, and subcategories to the middle characters. For instance, a blue Nike pair of shoes with the size 40 can be SH-BL-40.

Step 3: Complete the SKU by using a sequential number

Ending an SKU with a sequential number such as 001, 002, 003, etc., makes it easier to set up and distinguish older items from newer items in a production line.

Let’s say we use 003 to indicate new Nike shoes. So an SKU for a new blue Nike pair of shoe size 40 can look like this N-SH-BL-40-003.

Step 4: Have SKUs added to your POS or inventory management system

Using retail POS with inventory tracking is much easier and more efficient than tracking inventory by hand in notebooks or spreadsheets. With SKU numbers in place, your sales and inventory can be tracked easily on a streamlined system.

Step 5: Create SKU barcodes to include on your product labels

You need a scalable version of your SKU to checkout and count inventory easily. You can either download and print scalable codes from a barcode generator or have your barcode automatically created if you use an automated inventory management software or POS system.

how to create SKU numbers

What Makes A Good SKU?

SKUs have all the benefits of tracking your internal inventory conveniently. However, if your products haven’t had SKUs yet, you can create your own successful SKU system to better your business management.

Below are the best guidelines for creating good SKUs: 

  • Keep your SKU formats simple. 
  • Make them unique.
  • Create short SKUs.
  • Arrange the SKU in order of importance
  • Never use a zero to start an SKU.
  • Avoid letters that look like numbers, such as L, O, and I.
  • Avoid spaces and slashes because some systems can’t handle them.

How To Manage SKU Numbers Effectively

To manage SKU numbers effectively, make sure to follow a simple format to write an easy-to-remember structure. You should group all the similar products together and assign short SKUs to them. Besides, implementing an inventory management system can automate the whole process and eliminate human error.

To Sum Up

Now you have known the answer to the question “what is SKU”, creating SKUs for your products should become one of your priorities. Simply put, every e-commerce business should label its products with SKUs to easily track and recognize inventory. If done right, SKU numbers can even boost your sales, better serve your customers and develop customer loyalty.

Read More:

What Is A CSV File And Its Meaning For E-commerce Business?

Ultimate Guide To Price A Product

How To Write Highly-Converting Product Descriptions

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