What Is SKU Number And How Can You Set It Up?

16 Aug 2019

What can be worse for you as a seller than losing a potential sale because of poor inventory management? What can be better than using data-driven inventory management software and tracking every single item in your warehouse?

To feel less frustration and provide more positive buyer experience, SKU codes take the stage, making your stock management process trouble-free and effective.

At the end of our guide, you will learn what is a stock keeping unit, how to create it and how you can grow your retail business through SKU rationalization.

What is an SKU number? Here’s everything you need to know

SKU stands for Stock Keeping Unit and is assigned to products in your inventory. It’s a unique number in alphanumeric digits that provides details about the traits of a single item in your stock, thus helping you to track every item at your disposal. Think of an ID number but designed for physical goods, not people.

Let’s see how to set up SKU numbers with a practical example.

Say you are selling shoes in your online or brick and mortar store. You can classify your goods by style, color, and size. And all the shoes in your stock have their separate ID that contains info about these essential characteristics.

If you offer shoes in 3 styles, like sneakers, boots, and loafers, you may use acronyms like SN, BT, and LF respectively. Then we are coming to the color part. You might have shoes in 4 colors – black (BLA), white (WHI), brown (BRO), and blue (BLU). The second part of your SKU is ready too.

Then the last characteristic – size – should be reflected in your SKU code. 36, 37, 38, 39, 40 and the list goes on.

In the end, you just add a sequential number that shows how many items are available from the shoe with the same characteristics. Your full SKU for the 1st type of product will look like:

BTBRO3800001

BTBRO3800002

BTBRO3800003

For your other product, you will have something like this:

LFBLA3700001

LFBLA3700002

LFBLA3700003

And the same logic works for all the shoes in your inventory. Which characteristic will be entered in the beginning, totally depends on your business and your customer preferences. If they ask for brand names more frequently, then you’d rather add brand identifier first. You and your consumers are the ones who guide your team in creating an SKU for this or that product.

It’s also up to you to decide whether to create SKU codes manually with spreadsheets or automatically with software. If you go for the second option, an SKU generator will do the job for you and you will just add what amount of particular product is available at the moment.

Want efficiency in your SKU numbers? Here are some actionable tips

This process is quite easy and doesn’t even require special skills. But we would like you to have a look at the simple recommendations below that will help you stay away from minor and major data entry mistakes.

#1 Avoid special characters like slash, hash, colon, etc – Some programs will not be able to recognize these symbols and won’t reflect the numbers correctly. Dash is not usually considered as a special symbol, so you can use is to separate the alphanumeric characters.

#2 Try not to use letters that look like numbers – I sometimes am easily confused with 1 or 0 can be read as O. We know that your team is attentive, but the fewer chances for a mistake, the better for everyone.

#3 Start with letters, never with 0 – You are cognizant of the fact that 0 equals nothing and that some programs may not even consider it as a real number. Instead, you’d rather replace the real names of product characteristics with their first 2-3 letters.

#4 Be organized and follow your own rules – You already know that the SKU generator works the way you command. If you sell furniture and created your first SKU in a category-price-material-color order, make sure to follow the same sequence while asking your SKU generator to produce the final code.

#5 The beginning is the most important part of the work – If you run several stores in the city, the store category may be the most critical factor for finding the item quickly. Or in case of an online store, maybe you will find necessary to start your SKU code with the brand name. Whatever matters to you the most, make it the first part of your SKU number.

SKU vs UPC: What’s the difference

Sometimes people don’t spot the difference between these two terms and even wonder what they are designed for. If you want to learn the answer once and for all, we will help you with a quick comparison below.

SKU is an internal number produced by your business and based on product characteristics that matter to your team and customers. While UPC (Universal Product Code) is universal and the details are determined by the Global Standards Organization.

SKU is a number between 8 and 12 digits, while UPC always consists of 12 characters.

Of course, you may use your manufacturer’s UPC to track your inventory and not generate additional code but SKU, as mentioned, is specific to your business and allows you to include more product traits.

How can SKU numbers help you grow your business?

If you think that retail business owners lose money only because of shoplifting and employee theft, maybe you should look at some statistics. From paperwork to vendor fraud and inventory management errors, retailers face issues that cost them thousands and millions of dollars.

So you should work not only on eliminating the reasons above but leveraging some growth tactics too that are closely related to your SKU activities.

Discover high-performing products – It’s quite natural that you have both slow-selling and hot selling products. But you can’t guess which of the people buy the most if you don’t have precise data to rely on. By having your inventory reports at your disposal, you will know exactly which of your products buyers prefer the most. This, in its turn, will lead to wiser management decisions.
Promote your best products actively – Since you already know which product(s) of your stock drive the most revenue, you can brainstorm some ideas on how to increase the visibility of those products. If you are an online store, you can display them more frequently or in case of a physical store, you’d like to keep them in front of your store visitors’ eyes.
Make smart suggestions to visitors – Since you provide the most essential traits of your product via your SKU code, the software will find similar items for your online store visitor is looking for and suggest her consider those options too. The suggestions, of course, will be based on pure data and help your visitors with a personalized approach.
Avoid overstock and understock – Both consequences are undesirable. You wouldn’t like to have plenty of the same product, nor you’d like to miss a sale opportunity because of miscalculations. You can ask your inventory management software to send you a notification once there are only 10 items left from that particular product and order a new shipment accordingly.
Increase customer satisfaction – Your customer liked one of your products, visited your store after a week, and you don’t have his preferred item to offer him. He will first get disappointed, then just walk away and move to an alternative option – probably your competitor.
Find desired information quickly – This point is primarily applicable in case brick and mortar stores. If you want to check the availability of X or Z product, you don’t need to go to your store warehouse, call or message someone, bother your colleagues or get lost in a sea of hundreds of clothing (or watches or skincare products or anything else). Just a few clicks on your computer and you can provide the needed answer.
Eliminate human inventory errors – Of course, the human touch is necessary while entering the initial data to the software and also while updating the info (once your new orders have arrived). But this way human interaction is reduced to a minimum. So when a visitor buys the product, your software records -1 in the amount of that product. You don’t have to update all the purchases info every single day.
Understand how fast your items sell – Knowing how long certain products “live” in your stock, you can be more confident in negotiating with your suppliers and provide them precise details on when exactly you need A, B, and C products shipped. A similar approach will help you define clear timeframes and avoid late arrivals.