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What is a SKU Code and How Can It Help Your Business?

Posted by Micah HartmannLast Updated October 14th, 2022
— 10 minutes reading

Wendy manages a clothing store. One day, Customer X orders a red, medium women’s t-shirt via social media. Assuming that there is available stock, Wendy confirms the order and promises delivery. However, the item is out of stock. The customer is naturally upset and leaves negative reviews about the business online.

This short anecdote shows poor inventory management that not only resulted in a missed sale, but also damaged the brand’s reputation. If you are in the retail business, knowing what a SKU code is and how you can incorporate it to run your store operations could save the day.

Inventory is money. Whether you own a brick-and-mortar store or sell online, an SKU system will help you be in complete control of your inventory.

Below is a quick guide on what is a SKU number, how you can use them to bring your business to the next level, how to create SKU numbers, and much more.

Let’s dive in.

What is SKU?

SKU stands for Stock Keeping Unit. It is a unique code consisting of a set of letters and numbers you can assign to your products, so you can manage your inventory more efficiently. The alphanumeric code is typically between 8 and 12 characters long and corresponds to specific information about the item, such as its brand, type, style, size, color, and availability, among others.

Take note that a SKU is not universal. The SKU codes you generate are unique to your products. So the SKU numbers you use will be different from those used by other businesses, because the things they track may differ from things that matter to your store operation.

SKU vs. UPC: What’s the Difference?

When it comes to inventory keeping, you will see quite a number of codes used in the retail industry. However, for the unfamiliar, it can be difficult to tell if one is looking at a SKU code or a UPC number. The latter stands for Universal Product Code. Here’s a breakdown of how SKU differs from UPC codes:

SKU (Stock Keeping Unit)
●  	Unique to  each retailer
●  	Alphanumeric
●  	Between 8 and 12 purposely chosen characters
●  	Contains product characteristics
●  	Comes with a barcode
●  	Retailer determines own SKU architecture
UPC (Universal Product Code)
●  	Universal across all retailers
●  	Numeric
●  	Consists of 12 random characters
●  	Identifies items and their brand owner
●  	Issued by the standards organization, GS1 US
●  	Constant through the product’s shelf life, regardless of where it is sold[1]

For the purpose of discussion, you might be wondering what serial numbers are, too. Serial numbers are also customized to specific products, but they are mostly used for electronics. It is common to see them printed on devices such as laptops, so manufacturers or service teams can use the codes to check on ownership or warranty.

Now that you have a clear idea of what a SKU is and how it differs from a UPC, it’s time to learn how to use it to bring your business to the next level.

8 Ways You Can Use SKU for Your Business

SKU numbers should not be an alien concept to sellers like you, because they are vital to your operations and make life so much easier.

SKU converts your physical items to digital information, a chunk of data that opens a flood gate of information to help improve all aspects of your business.

Here’s how to make most of SKU numbers to grow your business:

1. Accurate Inventory Tracking

Since you can use SKU numbers to track different characteristics of your products, you can use them to monitor your inventory. You can check the availability of specific items and your stock levels, even across multiple stores.

Your re-ordering can be streamlined, since you will likely have an inventory system integrated with your supplier’s system. With the same identifiers across different stores, you can also keep all of your systems up-to-date, and that should help achieve an efficient supply chain and logistics.

With accurate inventory tracking, you will have excellent inventory management that eventually helps you maximize your cash flow.

2. Forecast Your Sales

Using SKUs, you can view your inventory levels in real-time, which can help address your brand’s urgent issues and opportunities. For example, you can determine if you are overstocking some items that are slow to sell, so you can adjust future orders.

Likewise, you can avoid low inventories for your best-selling items. Knowing the most popular items will allow you to push for more sales through online promotions, window displays, and other methods to help move items faster.

However, remember that having a good balance of top-selling items, and other products, will help meet the demands of your customers.

3. Improve Customer Satisfaction and Loyalty

SKU codes can help determine which products customers will likely re-order. Knowing this, you can ensure that such items are readily available, so buyers will not encounter out-of-stock prompts. This leads to a better customer experience and can help develop brand loyalty.

When customers in the United States encounter out-of-stock items online, 15% of them go to other sites to buy the same item. While 60% of these buyers may look for substitute items on the same online store, half of those will switch brands or look for substitutes. Another 15% will delay or cancel their orders.

Across the globe, recapturing sales from buyers who did not find what they were looking for could help retailers gain $22 billion in profit.

4. Suggest Relevant Products

When you have products that are out of stock in-store, your SKU list can help you offer customers similar items that they may like. The same is true for online sales, where you can offer alternatives. You can upsell or cross-sell other items that can be useful to customers based on the SKU of the item that they intend to buy.

You have a 60 to 70% chance of upselling to existing customers, and about a 5 to 20% chance to obtain new customers. Beyond the extra profits, SKUs can be used for upselling and cross-selling, which can help build a deeper relationship with your market. You create a wonderful and straightforward buying experience that will convince them to come back for more in the long term.

5. Better Customer Experience

If you are in sales, you have to know your products in and out. You have to know how one product differs from another. With this knowledge, you can easily organize your store or warehouse so you will be able to locate items fast in a physical store, or ship them promptly if you’re selling online.

When your staff learns your SKU architecture, they will know where the products are, decreasing wait time for customers. They can also easily guide the customer to make informed buying decisions.

6. More Efficient Fulfillment

With good use of SKU codes and inventory tools, you can fulfill orders faster. SKUs pave the way for the digitized processing of orders. This saves you time because not only can you pack and ship orders quicker, but your inventory is updated automatically.

Fast fulfillment will translate to happy customers. About 40% of US shoppers are only willing to wait 2 days when they opt for fast shipping. Eighteen percent of online buyers say that they’re only willing to wait overnight when paying for expedited shipping.

7. Reduce Shrinkage

When you run a retail business, you might have different product suppliers. SKU numbers can help you keep a tab of the products coming in. You will know the exact number of items arriving at your warehouse or store, and if there are missing items, you can report them as missing, suspected mishandling, or possible theft.

8. Behavior Analytics

Aside from knowing details about your inventory, SKU analytics can also provide you meaningful insights into your customers’ buying behavior. For example, you can see if customers tend to buy certain items together so you can plan the assortment of goods to have available. You can also determine profitability per product, measure the day’s outstanding inventory, learn about inventory turnover, and more.

The benefits of using SKU for your business revolve around not only managing inventory, but more importantly, fostering a better customer experience.

How to Create SKU Numbers

If the products you are selling do not have SKU codes, you can create the SKU numbers for them. Make sure you do not use your supplier’s SKU, because you might run into problems at the end of the day.

You can generate your unique SKU numbers using inventory management software such as inFlow.

Quick Tips When Creating SKU Codes

Here are some things to remember when you create your own SKU architecture:

Steps in Creating a SKU Number

●  Use 8 to 12 characters

●  Start the SKU number with a letter

●  Ensure each letter and number denotes an important characteristic of your products

●  Do not overload SKUs with meaning

●  Do not use zero to start the SKU

●  Avoid letters such as L, I, or O that are often confused with numbers

●  Use a simple format that’s easy to understand

●  It is best not to re-use SKU numbers

●  Use separators such as dashes or dots

●  Avoid spaces and slashes between characters

Let’s take a look at the basic steps when creating SKU numbers:

1. Choose SKU Number Identifiers

When structuring your SKU numbers, you first need to decide what product traits you want to track. This can be the size, category, color, style, type, brand, or other qualifier.

2. Assign a Top-Level Identifier

The first 2 characters of your SKU should be a top-level identifier. For example, if you are running multiple stores, you can use them to identify the store location.

3. Incorporate More Product Traits

The next 2 to 8 characters will identify unique traits such as brand, color, style, and size. You can identify suppliers using letters to avoid confusion.

4. End with a Sequential Number

The last 2 to 3 characters of the code should be sequential numbers to help you distinguish between new and old inventory. So if you have the same-sized red t-shirt from the same brand, this portion of the SKU will help you determine which product to push out first.

Here’s a SKU example:

If you are creating SKU numbers for Brand RS, you can assign the identifier RS so you can distinguish it from brands AA and BB, for example. The next identifier will help determine if it’s a shirt (11), pants (12), or dress (13).

The next two characters of the code will give you the color, like red (21), purple (22), or white (23). The next portion will be for the size, such as small (31), medium (32), or large (33).

So, if you have an RS t-shirt, red, size medium, the SKU number will be RS112132.

SKU Numbers FAQs

Here are some of the most commonly asked questions about SKU numbers:

What is a SKU number and what does SKU stand for?

Stock Keeping Unit or SKU is a unique code you can assign to the products you are selling. You can use SKU numbers to track inventory, improve sales, provide better customer service, and more.

How does a SKU work?

It typically consists of 8 to 12 characters that represent unique traits for items in your inventory.

Why is SKU important?

SKU numbers can help you identify, track, and organize your inventory. When done right, a good SKU architecture will help you run your business more efficiently, drive more sales, and improve customer satisfaction.

Are SKU and barcodes the same?

SKU and barcodes may come together. While SKU codes are unique to a seller when assigned to an item, barcodes can be assigned to like products without having to worry where they are being sold.

How do I get a SKU for my product?

You can create SKU numbers manually, using a spreadsheet, or more conveniently by using a SKU generator that comes with inventory management systems.

Can 2 products have the same SKU number?

SKU numbers are unique. No two products can have the same SKU number.

How inFlow Can Help You Accurately Monitor Your Inventory

If you own or manage a small business selling products online or at a brick-and-mortar store, consider the best practices of using SKUs to reap its benefits.

Say goodbye to manual inventory tracking that’s prone to human errors, and use inventory management systems like inFlow to help you create your own SKU architecture, and bring your business to new heights.

inFlow already supports SKUs and can help you automatically generate SKUs, too.

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