Everything you need to know about SKU Codes & how they can benefit your business?

Sometimes spelt Sku, pronounced ess-kay-you and even skew – SKU stands for stock keeping unit.

Typically, it refers to a product code that consists of numbers and letters that can be used to search for, identify and track stock levels for a unique product line.

If you’ve been wondering what one is and why it is important to a business, look no further, as we’ve got all the answers for you here.

What is an SKU and what format should it take?

The term SKU is used when talking about inventory management. The numbers and letters it consists of determines the characteristics of a particular product by terms such as colour, size, manufacturer and type, which allows the location and availability of a product to be easily identified.

In most cases, SKUs tend to be 8-12 characters in length and have a formula that is imbued with some sort of meaning. Also, it would be best to avoid starting your SKU with a zero as spreadsheet software such as Excel will discredit the 0, creating more hassle for yourself later on.

Stick to an alphanumeric formula, so avoid accents and symbols which may cause you formatting issues and if you are using a spreadsheet, you may want to begin your SKU code with letters as it will provide a much easier way for you to identify a product.

For example, a pair of size 9 Men’s Adidas Stan Smith trainers may want to look something like this:

MADI-SS-BK-09 – this translates as Men’s Adidas, Stan Smith, Black, Size 9

Why is an SKU important?

 SKUs not only allow a product to be found quickly and efficiently within a business’s inventory but on an online store too. For example, if two companies are selling a blue t-shirt online, as both of those items have a unique SKU, it allows the company associated with that SKU to track the movement of that product and manage their inventory.

As SKUs also serve as a shorthand for longer product descriptions this saves time when having to input the product codes into a spreadsheet or SKU system. Inventory management is key to any business and SKUs make it easier to identify what a particular product is, how it differentiates to other products and how much of that stock you have available, which will ultimately save a business money.

How are SKUs cost efficient?

Good SKU management will allow you to optimise your stock levels appropriately by being able to identify what stock is performing and what stock is not, which can lead to an increase in profit.

If you are operating in a warehouse, your SKU system will enable you to determine what products are generating greater sales and which products are the worst performers. If you have too much supply of a particular stock, you could then reduce your inventory, remove the stock or devise a strategy which may increase the performance of that particular product.

In another instance, good SKU management will prevent a company from suffering a missed opportunity and as a result, loss of money. If a product is extremely popular, the last thing a business wants is to be out-of-stock knowing they can get their hands on more of this particular product. If you’re tracking your inventory levels, this can be quickly identified and stock can be replenished.

Is an SKU Code the same as a barcode?

No, it is not. An SKU can be read and understood by a human, whereas a barcode requires some form of technology such as scanner to read.

An SKU is an internal code, specific to a business whereas a barcode is universal code created by the manufacturer.

How you can use an SKU Code?

1. Track Inventory Accurately

This enables a business to utlimately manage stock control, furthermore allowing stock availability and product variation to become an easier process throughout the business. As this enables stock accuracy this allows for the right quantity of products to be restocked and avoids products being sold out, or having excess stock.

This helps a business forecast demand and make tactical marketing decisions which will maximise sales by preventing shortages and optimising stock.

2. Forecast Sales

By tracking stock inventory accurately, a business can begin to anticipate its needs, which will make you a more reliable merchant for customers and in turn increase profit.

If a business identifies that they are selling out of one SKU more than another, or selling so many products with a specific SKU code one month, and hardly any in another, they can begin to deduce how much of a particular product will need to be ordered. By managing their inventory and maintaining stock levels, the business is less likely to overstock or understock a product, which means customers are less likely to look for the product elsewhere and more likely to have a better shopping experience.

3. Measure Profits

SKU tracking also allows a business to identify their best and worst sellers and counterbalance those SKUs against the breakdown of sales vs cost to the business to see the profit margin.

This will allow companies to devise strategies that will increase profits. For slow-moving products, they may approach this with promotional offers, or more competitive prices and for items that are selling out, a plan could be put together on how often that particular SKU needs to be reordered.

How many SKUs should you have?

There’s no definitive answer to this question. You can have as many, or as little SKUs as your business requires – it all depends on the industry you work in.

You’ll find that established retailers will have SKUs in abundance as they have a much larger market to supply for and a wider range of products available.

What is key is that you know what’s important to your business, customers and vendors. Then you can create SKUs appropriate to your demand, which will allow you to manage your inventory and expand as your revenue increases.