What is the SKU number? A stock-keeping unit, or SKU number, is an alphanumeric code that helps retailers track inventory. It is usually found on the product’s price tag.

SKU numbers are essential for managing inventory and maximizing sales. This guide will cover what SKUs are, why they’re crucial, and how to generate one.

What is SKU Number?

A stock-keeping unit (SKU) number is merchants’ product code to their products. It’s typically between 8 and 12 characters long, with each character corresponding to something unique about the item (item type, style, brand, or department it belongs to).

SKUs are unique to every business. The information should be what your customers or vendors ask most about the products you carry, so each SKU number should represent something different depending on the type of product sold.

For example, a clothing store may assign an 8-digit SKU number to a product where the first two digits represent the category (shirt, sweater, etc.), the next two digits represent the style (regular, slim fit, or oversized), the next two digits represent the color (BK for black or BL for blue) and the final two digits represent the stock count for the item.

How are SKU Numbers Used?

Retailers use SKU numbers to track inventory and sales, but they can also help forecast future demand. It can also be taken into account when suggesting products in-store or online.

1. Accurately track inventory

SKUs are a helpful way to track inventory. For example, if you have many retail stores and want to know the availability of your product across all locations, SKU numbers can be used.

Inventory levels should be updated and maintained so that you can order more of a product before it goes out of stock.

2. Forecast sales

Inventory levels, SKU numbers, and other data help merchants know what products they need to stock up on to fulfill customer demand.

Please don’t stop carrying products that sell less than other items because it might be the only thing a customer is interested in. Click To Tweet

It may not make as much money, but you could lose customers if they can’t find what they want.

When Walmart implemented Project Impact in 2008, they removed their lowest sellers and stocked up on higher-margin items. Unfortunately, this led to declining sales because customers could no longer count on the retailer carrying certain products.

3. Capitalize on high-profit products

Knowing what items are popular and unpopular can help merchants understand the business. A proper SKU terminology will help in this.

By knowing which popular products, retailers can create enticing displays, window displays, and web pages. This will help them move products faster.

4. Recommend relevant products

When merchants use SKU numbers to track their products, they are equipping themselves with a valuable tool: information. With this knowledge of what is in stock and who has access to it, sales reps can communicate the product line more effectively.

When a customer is looking for an item that you don’t have in stock, sales associates can explore other products with similar features. This helps customers find the perfect gift.

It is easy to apply this tactic online. Just think of the last time you shopped and saw “other products you may like” on a page with similar items as what was being looked at. This is because these shared common characteristics in their SKU nomenclature.

5. Increase customer satisfaction

SKU numbers help predict inventory levels to have what a customer wants when they come in.

To provide customers with the products they need, merchants should minimize out-of-stock items.

How to Define and Create an SKU Nomenclature

An SKU number terminology pertains to the alphanumeric codes that define, categorize and identify information stored in each SKU.

Ensure that the SKU number reflects a product’s most important characteristics (item type, color, size, manufacturer, gender, and model). Typically, this information is ordered from most important to least important.  

Here are some tips for how to go about creating your SKU nomenclature:

1. Consider how much stock you carry

If you are a company that only carries a few products, you can opt to track just bare-bones characteristics. However, following the different customer groups will be beneficial if your inventory offers something for everyone.

Product type > Gender > Size

Tracking such details can help you in purchasing and managing inventory.

2. Assure that each SKU is unique 

SKU numbers are not only helpful in tracking inventory but also in differentiating products. If SKUs are the same between two or more similar items that share many of the same characteristics, managing inventory becomes challenging.

Here are a few points to keep in mind when establishing your SKU nomenclature:

• Length must be between 8 and 12 characters 
• Avoid using the number 0
• Make sure that each letter and number you have a meaning

If you offer more complex products and want to include more categories in each SKU, there are a few things that could be added to the SKU nomenclature:

• Supplier
• Store location
• Department
• Size
• Color
• Item type
• Category

4. Build your SKU jargon in the inventory system

Retail point of sale systems typically have integrations to help create an SKU nomenclature and generate SKUs. 

Alternatively, merchants can use an Excel spreadsheet to document their SKUs and manually add SKU numbers as needed. But be warned. This process is open to mistakes and can lead to inaccurate inventory tracking.

SKU Number vs. UPC Code: What is the Difference?

UPCs and SKU numbers are both found on a product’s price tag, but they serve different purposes. Here’s how SKU numbers and UPCs differ from one another:

SKU (stock keeping unit)

• Unique to each merchant 
• Between 8 and 12 characters
• Alphanumeric
• Identifies product characteristics 
• The retailers determine their SKUs 
• Accompanies a barcode 

UPC (universal product code) 

• Universal across all merchants
• Always consist of 12 characters 
• Numeric
• Identifies the manufacturer and item
• Issued by the Global Standards Organization or GSO

If you are a new business that needs barcodes for merchandise, you can visit the GSO’s guide to create barcodes and UPCs.

To summarize, SKU numbers anUPCses are not the same.

SKU numbers identify a product’s characteristics, while a UPC identifies the manufacturer and item. Click To Tweet

Final Thoughts on What is SKU Number

SKU numbers are a great way of organizing inventory. By assigning a unique number to each product, merchants can make smarter purchasing decisions, manage inventory better, and make it easier for sales representatives to sell products.