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What Are SKUs? How to Generate and Implement Them

As a small business owner, you may be wondering “what are SKUs?” and how do you generate and implement them? Here’s everything you need to know about SKUs! 

If you’re in the retail business, then you know that SKUs are important. I remember when I first started my small business, I had no idea what SKUs were or how to generate them. Thankfully, after doing some research, I was able to figure it out and now my business runs smoothly with well-organized inventory thanks to our trusty SKU system!

So, what are SKUs? Lets find out!

What Is A SKU?

A stock keeping unit (SKU) is a code that uniquely identifies an item in a retailer’s inventory. Retailers create their own SKU codes, which are typically based on the characteristics of the merchandise they sell.

In most cases, SKUs are divided into classes and groups.

A home improvement store typically has different sections, such as hardware or lawn and garden. Their SKUs are usually designed around the classification of the section, with numbers or letters designating products as categories within that section. For example, in the lawn and garden section, there might be a SKU for fertilizer that is classified as “L&G-FERT-1”.

A stock keeping unit (SKU) is a code that is assigned to a product by a retailer. SKUs numbers are used to track inventory and are unique to each retailer.

What Are SKUs Used For?

SKU numbers are a vital part of any retail business as they provide valuable data that can be used to assess profitability and efficiency. By doing inventory tracking and data on sales, businesses can make informed decisions about product stocking levels, pricing and more.


This analysis grants them the ability to stock inventory that coincides with trends in consumer behavior. SKUs provide retailers with data that can be used to analyze product popularity and identify seasonal and cyclic sales trends among different customer segments. This information can help retailers stock their inventory according to trends in consumer behavior.

This analysis allows retailers to stock inventory that coincides with trends in consumer behavior, giving them a better chance of selling products.

Inventory Management: The Core Function of an SKU System

Inventory management is a critical function for any business that relies on SKUs to track inventory. By understanding and tracking inventory levels, turnover, and flow, businesses can make more informed decisions about stock levels and purchasing.

By tracking sales data, retailers can set inventory levels and timeframes to help trigger when new orders should be placed or stopped.

Customer Assistance

A store assistant can scan an SKU to find out quickly what is in stock for a consumer that might want an alternative version of a product, creating sales efficiency and customer satisfaction. This allows the customer to find the product they need and makes sure they are satisfied with their purchase.

Advertising and Marketing

Stock keeping units are an effective way to advertise because they are concise and easy to remember.

An SKU can help your inventory stand out in a competitive online retail market. You can use SKUs to track which marketing techniques are driving sales by looking at the product identifiers. This information can be used to adjust your marketing strategy and maximize sales.

Some manufacturers will list their item number or stock keeping unit (SKU) instead of the model number of their product.

By not posting your prices online, you make it more difficult for a customer to find your products elsewhere while making it harder for your competitors to match their price.

It can help to reduce the practice for consumers to visit physical retail stores to compare prices with online competitors.

Product Recommendations

Businesses also use these SKU codes to make consumer experiences on their online sales platforms more positive. For example, Amazon.com is able to pick items to display as “suggestions” when you are shopping by using SKUs.

The company has attached a unique SKU to each product in order to identify it. This SKU includes all of the identifying traits of the product.

When you view a blender on the shopping platform, other similar blenders will be displayed. This allows you to compare and contrast different products to find the perfect one for your needs.

How to Create and Implement SKU numbers in 5 steps

Let’s now look at the five-step framework to create SKU numbers. The same framework applies regardless of whether you use a manual system to track your inventory or a POS option. You can use whatever logic you like to mix numbers and letters in your SKU number system.

These steps will help you create a system that suits your business’s unique needs.

Step 1: Start SKU Numbers with a Top-level Identifier

The top-level identifier should be the first two or three characters/digits of each SKU. This could be a department, a store category, or even an supplier. A glance at the SKU number will reveal the top-level merchandising category and the location of any product in your store.

This section can also be used to identify the locations of your stores if you have more than one.

Step 2: Use the middle numbers to assign unique identifiers

It is a good idea to use the middle portion of SKU numbers to assign unique product details or features, such as size and color, product type or subcategory.

Step 3: Finish the SKU with a Sequential No

For the final series of an SKU number, you can use sequential numbering (e.g. 001, 002, or 003) to make setup easier and help you identify older items versus those in a product line. Sometimes, it can be beneficial to tie the last series of an SKU number with a supplier product number. Use whatever logic makes sense for the products that you sell.

Step 4: Add SKUs into Your Inventory Management System or POS

Although you can create SKUs by hand, or using spreadsheets, it is much easier and more efficient for retailers to use a POS that has inventory tracking. A POS like Square allows you to enter as much or as little product data as you need. However, small stores usually only need to enter the following information to get started:

  • Item name
  • Category of the item.
  • Product description
  • Type of item
  • Pricing
  • SKU number
  • All applicable variations, such as different sizes or colors.

This data will allow you to manage your sales and track inventory in one system. Every transaction updates your inventory automatically so you always have the right inventory for every SKU number.

Barcode ready

Once you have added your SKU numbers to your inventory system, you will need to create scannable versions or barcodes of your SKUs to include on product labels. This will allow you to make inventory counting and checkout easier. You can use our barcode generator above to generate the scannable codes you can download and print.

If you use an automated inventory management system or POS system, barcodes will be automatically created for each product. Your barcodes can be printed and attached to your products.


So, what are SKUs? SKUs are codes used to identify inventory, and their uses include inventory, inventory management, and sales trends analysis. By understanding how to use SKUs, you can design store layouts and organize inventory to enhance shopping experiences for your customers.