What is a SKU? Here’s Everything You Need to Know
Whether your business starts out with one product or one hundred products, it’s important to create a smart SKU naming strategy as early as possible. Many companies that start out with only a few products don’t consider how important this aspect of inventory management truly is, yet proper SKU names are an integral factor in efficiently scaling a business.
When selling your products through retail or wholesale channels, SKUs allow easy identification of products in your inventory, systems, and sales orders.
Read on to learn about why SKU naming matters for your business goals, and learn how to properly name your SKUs for efficiency.
What is a SKU?
SKU is an abbreviation for Stock Keeping Unit. A SKU is made up of letters (and often numbers), and is used to name a specific product for inventory management purposes.
The letters and numbers within a SKU are abbreviated and are designed to distinguish products from each other by specifying different variables. SKUs may include naming schemes that indicate the product’s manufacturer, name, model, size, color, description, material, packaging, warranty terms, or other specified parameters.
SKUs may also be referred to as:
- Item identification numbers
- Item numbers
- Part numbers
- Model numbers
- Product codes
- Part codes
Whatever you call them, they are used to uniquely identify items that your business carries in its inventory. They are important for you, your staff, and the systems you use for tracking inventory, operations, and sales. If you or your system can’t uniquely identify an item, then you will not be able to effectively account for its activity and status in your inventory.
SKUs also serve as a convenient shorthand to reference longer item descriptions. Instead of entering an entire product name or the description of an item, your staff can use a much shorter SKU or item number. This greatly speeds up the process of data entry as well as inventory management.
Good SKUs make your business run more smoothly – and they make your employees’ jobs easier.
Product SKUs often appear on the product, on a sales order, inside inventory management software, and on the warehouse shelf or bin that stores the product.
SKUs are unique to your business, so the SKU naming scheme you use in your inventory management system may differ from the SKUs of identical products you order from a manufacturer.
Why does it matter?
Properly named SKUs are an important piece of your company’s inventory management strategy. Good SKUs can be read and understood by staff and can help staff understand what they are looking for – or what they are looking at.
Benefits of proper SKU naming include:
- Easy identification of products and their variations
- Conveying information quickly
- Increased efficiency, accuracy, and fulfillment speed
- Decrease fulfillment errors
- Improved quality control
- Makes work easier for staff (inventory manager, warehouse staff, customer service, sales team, operations, etc.)
- Help to scale your business
If you are outsourcing fulfillment of your products, proper SKU naming is essential.
SKUs help with sales forecasting
SKU naming also helps you track your inventory at a deeper level, so your product manager can forecast inventory needs with a better understanding of sales data and trends. This will allow you to more accurately predict which product variations you need to purchase more of, so you can avoid stale inventory of less popular products and becoming out of stock on popular SKUs.
Best practices for SKU formatting
Determine what product variables are most important to distinguish
When reviewing products in your inventory, which are the most important variables to note? Some of the most important indicators may include the product’s manufacturer, name, model, size, color, description, material, packaging, warranty terms, or other specified parameters.
- If you sell coffee mugs, factors may include: design, size, and color.
- If you sell apparel, important factors may include: brand, item type, material, color, size.
- If you sell dining sets, factors may include: brand, item type, material, color, size, and quantity of items within the set.
- If you sell keyboards, factors may include: brand, model, color, warranty, and accessories.
Arrange the varying terms in order of importance
Most important factors (such as item type or brand) should be indicated in the first section of the SKU. The last section of the SKU should indicate the unique variables (such as color or size).
Stick to one SKU naming formula
For ease of identification, choose the formula that will work best for your business and stick with that when naming all of your SKUs.
Make SKUs easy to read and understand
The more straightforward your SKU naming strategy is, the more efficient this aspect of your business will be. SKU naming affects various roles within your company including your operations manager, sales team, warehouse staff, and customer service team. Name your SKUs in a way that is obvious enough that staff members can read and understand SKU sections with a bit of training.
Keep SKU sections short
You don’t need to include full words in each section. The color descriptor “black” can be reduced to “Bk”. Design descriptions such as “Marilyn Monroe” can be reduced to “MM”
Avoid confusing letters and numbers
This should go without saying but, when possible, don’t use numbers are letters that can be confused. For example: 0 and O; I and 1; or capital I and lowercase l.
Be sure to avoid using coded SKUs that would require someone to look up a SKU in a log book. For example, a t-shirt should have a SKU such as “T-M-Blk-XL” instead of “046-Blk-XL”
Examples of properly named SKUs
- 2018 Daily Planner, Red with Color-Coded Tabs = DP18-Rd-T
- 2018 Daily Planner, Black with Color-Coded Tabs = DP18-Bk-T
- 2018 Daily Planner, Blue (no tabs) = DP18-Blu
- Tin of Loose Leaf Green Tea, 10 oz = TLL-Grn-10
- Tin of Loose Leaf Earl Grey Tea, 15 oz = TLL-Earl-15
- Tin of Earl Grey Tea, 30 Tea Bags = TB-Earl-30
- 10-inch Dinner Plates, White, Set of 6 = DPLT10-Wh-6
- 8-inch Dinner Plates, Blue, Set of 10 = DPLT8-Bl-10
- Men’s T-Shirt, White, Medium = TS-M-Wh-Md
- Women’s T-Shirt, White, Small = TS-F-Wh-Sm
How many SKUs should you have?
There is no right or wrong answer for this but, to put it simply, you should have as many SKUs as necessary to create a highly efficient inventory management process.
As long as SKUs are names properly and utilize important variables, there is no such thing as too many SKUs.
On the other hand, if you don’t have enough SKUs to properly indicate all the variables of products in your inventory, then it’s safe to say you do not have enough SKUs.
SKU naming for your business
Ultimately, the best SKU naming system is the one that works for your business. Opt for simplicity and ease when naming SKUs.
Once your SKUs are set up, inventory management will be easier for everyone involved.