January 13, 2022
You’ve certainly come across a product SKU many times, even if you’ve never stopped to think about what a SKU is. It’s a unique code that every retailer assigns to each and every product. If you are considering opening a store or ecommerce site, you will want to become familiar with what SKU means, why it’s important and how to use it effectively in your business. In short, the SKU you assign to each product is a code that represents key characteristics of the product so that you can easily account for your entire stock of inventory.
The letters SKU (pronounced “skew”) stand for “stock keeping unit.” The definition of SKU is simply an 8-12 letter or digit (or combination of both) code that is assigned to each and every item that you stock and sell. The code is made up of different elements representing things like the type of product, color, size or any other relevant characteristic (more on this below), so that you should be able to look at a SKU and immediately be able to identify which product it represents.
SKU numbers are primarily used for inventory management and tracking. Whether you run a retail store, a warehouse, a catalog or an ecommerce site, if you have physical products, it’s the SKUs that will help you keep track of where all your products are, which ones need to be replenished, what are the best-sellers and more.
Some of the key benefits gained by using SKUs include:
Depending on the product, the SKU may be located in different places. It’s really up to you to decide where to place it on your product, but it’s generally found on the outside of the packaging and/or on the price tag. The SKU should be placed somewhere easily accessible to a scanner should you need to enter information about it into any of your systems.
You may hear people refer to SKU and UPC codes interchangeably, but they are mistaken! The biggest difference between the two is that an SKU is business-specific while a UPC is universal (hence, the term “universal product code”). As a business owner, you can create your own method for assigning SKUs to products based on your specific needs. Because a UPC is the exact same for a product no matter who is selling it, assigning a UPC is regulated by an international body called GS1. In practice, each product is likely to have both a UPC and a SKU.
Any product that you purchase in order to resell will come with a UPC (and likely also with a SKU assigned by the specific supplier). This number can come in handy for you if, for example, you want to compare prices across suppliers. You can search by UPC code to find out this information. Then, once you want to place an order from a particular supplier, you would do it using their SKU. If you are manufacturing a new product, you will need to purchase a UPC code for it.
SKU’s definition is an internal code created and used by you as the business owner or retailer. It does not cost you anything to create SKUs for your products and you can come up with your own system that will best help you track your inventory. Generally, SKUs are 8-12 characters long and use a combination of letters and numbers that serve as a shorthand description of the product.
A UPC is an external code usually created by the initial designer or manufacturer of the product. The process of getting a UPC code is managed and regulated by GS1 and the numbers in the 12 digit code are representative of specific industries and other details. It can cost anywhere from $50 to over $2000 to license UPC codes on an annual basis depending on how many products you have. Once a product has a UPC, it will never change.
Creating a SKU number for your products is a fairly simple process. At the end of the day, you just need a system that makes sense for your specific business, so that you (or any of your employees) can look at a SKU and intuitively know which item it refers to. You can choose to use the UPC as the SKU if you want, but it’s not recommended if you sell many products or especially multiple sizes of the same thing. The best practice is to develop your own system, keeping the following guidelines in mind:
Keeping these guidelines in mind, you then need to create your SKU pattern:
Step 1: Numbers or letters? You can use either just numbers, just letters or a combination of both in your SKUs. Letters may be easier when it comes to knowing what products are being referred to in reports, for example. Let’s say you have a t-shirt that comes in different sizes and colors. You might have a SKU like that looks like this:
TEE-SM-RED (for the red t-shirt in a size small)
TEE-SM-BLK (for the black t-shirt in a size small)
TEE-MD-RED (for the red t-shirt in a size medium)
You can spot the pattern here - the first part is the type of item, then the size, then the color. This is easily adaptable to any other products you have. Using just numbers might make sense if you have a catalog of items as then it’s easier to accept orders by simple SKUs.
Step 2: Create the structure - In the example above you can see the clear structure that is item type-size-color. Depending on how many products and the type of product, you may want to provide more or less detail. The most important thing is to have a specific structure that you will always follow so that you can easily create new SKUs for any new products.
Step 3: Assign the SKUs - You can use your inventory system or even a simple spreadsheet to list out each product and its SKU. Don’t forget to think about your customers and questions they tend to ask. If they are always asking about whether a certain color is in stock, you might want to put the letter or number that represents color at the beginning of the SKU so that you will see that information first when you sort it and can quickly see what colors are in stock.
Step 4: Label the Products - Make sure the right SKU gets put on the right product! You can print them directly on the price tags or other label that gets attached to the product so that the SKU is always easy to find.
There are tools you can use to help automate the process of creating SKUs. You still will want to create your own structure, but then there are tools that can automatically generate the actual SKU number for each item based on the structure you provide. This will save you time from manually creating each SKU individually.
Each and every product that you sell should have its own SKU. Meaning, every variant of a product should have a unique identifier - you should not have a situation in which every t-shirt has one SKU and every long sleeved shirt has another. Rather, each color and size of each type needs to have a separate SKU.
SKU is a powerful tool when it comes to product management. Using SKUs to accurately track your inventory levels as items are sold makes it efficient to optimize your supply chain and keep your costs down, increasing your revenue.
You can also analyze sales based on SKU numbers so that you can easily see which items are your bestsellers and which are less popular. For example, using Pay.com’s dashboard, you can have full visibility into all of your sales, sorted by SKU. You can see which items sell at full price and which do better on sale or barely ever get sold. All of this information will help determine the carrying costs of each item that you sell, ensuring that you make the wisest business decisions.
A seller SKU is a term used by Amazon to refer specifically to the SKUs of products that retailers sell using the Amazon platform. If a seller doesn’t create their own, then Amazon will automatically generate an SKU. When Amazon creates a SKU, however, they will assign a different number to each product sold in different stores. This means that if you sell the same toy truck in two different online shops, they will not have the same SKU number, complicating your inventory management process.
Bottom line - if you are selling a product, it’s got to have a SKU. Setting up an easy-to-remember structure for creating SKU numbers will save you hours of time and headache later on when you add new products. Once you’ve got all your SKU numbers assigned to your products, you’ll be well on your way to efficient inventory management!