What is SKU (stock-keeping unit)?

A stock-keeping unit, or an SKU, is the unique number or string of letters and numbers that represent each individual product the seller holds in their inventory. SKUs are most commonly used to keep track of stock levels. 

While there’s no predefined way of creating your own SKUs, most often businesses choose a combination that makes sense for most employees. SKUs are important for inventory management, and often contain information that helps to identify and classify a particular product. 

Most commonly, the SKU number starts with the most important information, while the least important information is left to the very end. But what is actually regarded as the most important information differs from one retailer to the next. 

A store selling only watches would want to differentiate between the types of watches (gender-specific, type of material used), while a camping store selling a bigger variety of different products would want to differentiate based on the product type (tents, sleeping bags, camping stoves). 

An SKU also helps to differentiate between slight variations in similar products. It might be that the last two digits of an SKU number determine the color of a shirt. 

SKUs are useful for online businesses as well, mainly because they: 

• Enable proper inventory tracking 
• Help to analyze sales trends 
• Can be used in analyzing buyer behavior 
• Make automation easier, resulting in increased productivity 
• Optimize your catalog management 
• Help improve inventory flexibility 
• Help avoid running out of stock of popular items 

How do SKUs work?

In order to set up an SKU architecture for your business, you need to know what’s the most important information for your inventory management. Chances are that if you only sell one type of product but offer it in many colors, the color information is important to know.

On the other hand, if you sell a collection of products but only stock one or two colors, the type of product is more important for you to know than the color. 

Start by understanding how your inventory is organized and cataloged. The bigger your inventory is, the more detailed your SKUs should be. Remember that SKUs are unique to each company. 

Some of the most important naming conventions include: 

• 8-12 characters long
• Starts with a letter 
• Can include both letters and numbers 
• Preferably no zeros

SKUs are useful for analyzing sales trends and cycles, too. Knowing which products are sold in bigger quantities during particular seasons will help you optimize your inventory planning for the following season.

Having a good SKU architecture in place also makes customer service easier. Being able to quickly locate and understand the stock levels of a particular product help to speed up many customer service queries. 

Maybe a customer wants to replace an item because it’s the wrong size or it’s faulty. With SKUs a customer service assistant can quickly look up what sizes of the product are left in stock. Or maybe the customer loved their initial purchase and want to buy another shirt in a different color. 

SKUs have made their way to marketing as well. Using SKUs in advertising helps the retailer prevent customers from looking up the Universal Product Code at another retailer. This way the consumer is more likely to buy the item from the advertising retailer, rather than shop around since it’s not certain they can find the exact item at another store.

Example of stock-keeping units in use

Stock-keeping unit numbers work great for both traditional brick-and-mortar stores as well as eCommerce businesses. 

Let’s say that you run an online activewear store. Your customers are mainly women, and you specialize in stocking good quality leggings. You’ve started your business stocking only a couple of brands, to gain some momentum and analyze the market.

Suppose one of the popular items that you stock is plain leggings made by Puma, Reebok, and Adidas. You offer them all in three different sizes (small, medium, and large), and in two colors (black and grey). 

To have a well-functioning SKU system, you would need to use SKUs to differentiate between:

• The different leggings brand (Puma, Reebok, or Adidas)
• The different sizes of the leggings (S, M, or L)
• And the color of the leggings (black or grey) 

There are many online tools that help you generate SKUs, but for small inventories, you can use a trusty table. You want to input all your different variables in your table and assign unique abbreviations for them:

Brand	Brand abbreviation	Size	Size abbreviation	Color	Color abbreviation
Puma	PUMA	S, M, L	51, 61, 71	Black, grey	11, 12
Reebok	REEB	S, M, L	51, 61, 71	Black, grey	11, 12
Adidas	ADID	S, M, L	51, 61, 71	Black, grey	11, 12

An SKU number for a black pair of small Puma leggings would be PUMA-51-11.

If you have various retail locations, or maybe a couple of warehouses or suppliers, you could consider adding this information to your SKUs as well. The most important thing is to only include information that matters to your business. 

SKUs vs UPCs

SKUs can be easily confused with UPCs, or the Universal Product Code. While SKUs are company- and store-specific, the UPC of a product stays the same, as it represents the product and manufacturing information. 

UPCs are: 

• 12 characters long
• Universal 
• Numeric
• Used to identify the manufacturer and the item itself 
• Issued by the Global Standards Organization

So, each iPhone across the globe has a universal UPC barcode that identifies the product as an iPhone, manufactured by warehouse X. But the Apple Store in California would use a different seller SKU compared to the Apple Store in New York. 

Similarly, a pair of Levi’s jeans have a product-specific UPC that remains the same across the different stores. The SKU, on the other hand, changes depending on the store that sells the jeans.