What is an SKU and why does it matter to you?

A stock-keeping unit (SKU) lets retailers keep track of all the items in their inventory. In essence, it’s a unique code (typically eight to 10 alphanumeric digits) assigned to each piece of stock to make sure every product is easy to find when required.

From supporting warehouse management to helping companies plan in-store displays, SKUs make sure a business’s inventory is organised and ready to meet demand year-round.

This guide will dive deeper into how SKU numbers work and how you can use them to fulfill orders more efficiently, delivering a better service to your customers.

As mentioned, SKUs (also called SKU numbers) are usually eight to 10 characters long and contain a mix of numbers and letters to make one product distinguishable from another.

The important thing to understand is that SKUs aren’t random. The codes are based on each product’s distinct characteristics – such as price, size, colour, and manufacturer – arranged in order of importance, so the most useful information is easy to scan.

For instance, examples of SKU numbers for a clothing store might look something like this:

This kind of categorisation gives companies the tools to proactively organise their warehouses.

When combined with retail inventory management software, businesses can create a comprehensive catalogue of every piece of inventory they own. This means they know exactly what they have in stock and where to locate it when a customer order comes in.

There are a lot of ways for businesses to identify products – barcodes, UPCs, serial numbers and PLUs, to name a few. So: what sets SKUs apart?

The main points of difference lie in the purpose and scope of each of these codes. 

Codes like UPC, GTIN and PLU are designed for large-scale use. They give every business the tools to track the same goods as they pass from the manufacturer on their way to the end customer.

By contrast, an SKU is only for internal use. It’s only helpful for the business that creates it, it can be any length, and can contain any combination of numbers and characters. As long as your business understands its own codes, the precise details don’t matter. You set the rules of your own system.

Looking for an SKU number? There are a few different places you should inspect:

• Packaging - It’s common to find SKU numbers printed directly onto product packaging, usually on a small label.
• Price tags - In a brick-and-mortar retail business, you’ll often see SKU numbers on product price tags.
• Product listings - When browsing online via a platform like Amazon, many merchants include the SKU within a product’s description.
• Receipts - Depending on the receipt system in use, some receipts may contain the products SKU number, either as an alphanumeric code or in barcode form.
• Inventory management software - If you use an inventory and sales management system, each product will feature an SKU number that makes it easy to find and sort.

Having trouble? The easiest way to spot the SKU is to look for a code containing a combination of letters and numbers, around eight to 10 characters long. UPC numbers, by contrast, are always 12 characters and consist of only numbers. If you’re scanning a barcode, ensure it syncs with the SKU and not another code like UPC or GTIN.

Here are six key benefits businesses can achieve when they classify and categorise their products with SKUs.

SKUs allow businesses to categorise their products based on their attributes. This enables proper warehouse management by giving businesses a method to group products based on shared characteristics, meaning every product is exactly where it needs to be for easy retrieval.

An SKU makes it easier to find the exact item required in less time. When a customer places an order, businesses can use their inventory management system (IMS) to search for the product, find its location in the warehouse, and then pack and ship it in less time.

Aside from making order fulfilment more efficient, this provides a more consistent, reliable service to the end customer.

As every product has a unique SKU, businesses can take quick, accurate stock counts and input the data into their inventory management system.

As such, they can order the right inventory at the appropriate time, helping to avoid stockouts. The granular data offered by unique SKUs also helps businesses mitigate the risk of inventory shrinking.

A lesser-known benefit is that management teams can use SKUs to more accurately track sales. In particular, knowing which products sell fastest and generate the largest returns is invaluable for business decision-making.

For instance, if SKU data shows that a specific t-shirt always sells out quickly, companies can use this to plan stock, align their marketing efforts, and even position their most popular products at eye level on store shelves to capitalise on demand. All of this leads to more reliable sales revenue and business growth.

SKUs are essentially a business’s own internal language. When every employee is aligned on the format, it’s easy to collaborate across teams.

If a sales rep wants to provide more information to a customer about a specific product, for example, they can simply provide the SKU to their manager and pull all of the details they need. This is much simpler than explaining easily-confused product descriptions.

SKUs let customer service reps quickly find whether a business has a product in stock, improving response times.

Online, companies can even set up automated recommendation systems, with similar SKU items being recommended once a customer makes a purchase. Together, these benefits help organisations deliver exceptional customer experiences.

Let’s dive into how you can generate SKU numbers step-by-step.

Every SKU begins with a high-level, broad category, usually two to three characters long. This could be the business department the product is associated with, the category that it falls under, or (quite commonly) the manufacturer that provides it.

You’ll need to create your own coding system here. An easy solution is to use abbreviations. For instance, clothing would become CL, while accessories could be labelled AC. For suppliers, Adidas becomes ADI, Nike becomes NK, and New Balance becomes NB.

Remember: the exact way you create and label these broad categories is up to you. All that matters is that you decide on a reliable system and stay consistent.

Next, fill out the additional SKU characters with product information, such as size, colour, product type, and any additional subcategories. It’s best to start with the most general classifications on the left and then get more specific.

For some categories, you may need to assign a number to each possible value. For instance, when assigning values to colours, you could use:

• 1 - Black
• 2 - Blue
• 3 - Red
• 4 - Green

And so on. Again, the product attributes you choose and the way you display them are entirely up to you. Consider what’s important for your business and create a system that’s consistent and easy to understand.

The first two steps would work perfectly if every product variant was unique, but – as you know – it’s common to stock products that are completely identical.

To help with this, make the final SKU characters sequential numbers (such as 001, 002, 003). This will show how many of a specific product you have and the order in which you purchased them.

An inventory management system is essential if you want to keep track of all of the SKUs you generate, especially if you’re handling a wide variety of products. Software like this provides a centralised database that will categorise all of your SKUs under one roof, giving you complete visibility over every product you own.

If you’d like to avoid the tedious task of creating SKUs yourself, you can also use software to create your SKUs automatically. Doing so will reduce manual errors that could lead to inventory shrinkage. It’ll also save you valuable time so you aren’t wasting your days manually assigning codes to every item.

Commerce Cloud, for instance, will generate SKUs based on the criteria set by you and apply your rules to all of your products, all while tracking and updating inventory in real time so you know exactly how much of each product classification you have on hand.

Lastly, you should generate barcodes to act as machine-scannable versions of your SKU. These barcodes can then be attached to the label of each of your products so they can be scanned by employees, either during a sale or to find more information about a product.

A great inventory system will automatically generate barcodes alongside your SKU codes. When your rep scans a barcode at checkout, the system will automatically update to reflect the sale – a huge plus when you’re trying to make your inventory management more efficient.

Here are eight ways you can use SKUs to improve your day-to-day business operations.

• Track your stock levels: SKUs allow you track inventory in granular detail. This helps you predict when it’s time to order new products while also helping to avoid phantom inventory concerns.
• Forecast demand and sales: When you sync your SKUs with your sales solution, you’ll be able to see which products are flying off the shelves and which aren’t, letting you predict when it's time to place an order or reduce your inventory.
• Optimise resource allocation: By extrapolating data from SKUs, businesses get insights into demand trends. With that knowledge, you can then optimise your staffing levels so you’re always equipped for busy periods.
• Build your online retail store: SKUs streamline the process of building your digital storefront. You’ll have all of the information you need to easily classify products into similar categories. This also improves the customer experience.
• Develop new selling opportunities: As SKUs group products into similar categories, this gives you a wealth of information that you and your sales teams can use to upsell or cross-sell to potential customers.
• Product recommendations: You can also set up automatic systems that recommend similar products to customers, either when one product is out of stock or after a customer makes a purchase.
• Designing displays: As an SKU system reveals your store’s most and least in-demand items, you can use this to optimise your displays. You could, for instance, put your most popular products on your front page, or at eye level in your store.
• Providing better customer service in-store: SKUs let customer-facing teams locate products in less time, speeding up customer service interactions and boosting satisfaction.

Let’s wrap things up with some extra tips for getting the most out of your SKUs.

This seems obvious, but when implementing SKUs, your staff needs to understand what they’re working with. Train your teams on your format and each individual identifier. Employees need to know what each abbreviation and number means in context. Where possible, create a knowledge base that your staff can refer to as needed.

Colour is an easy way to distinguish between physical products, but if you’re exclusively selling items that come in black, it’s a redundant product category.

Choose classifications that will actively help you distinguish between products. Doing so will make it easier for your team to find individual items. It’ll also help you better understand customer demand.

SKU codes have a lot more mileage than simple tracking devices. Use them to make agile, smart business decisions that support your growth.

For example, you can (and should) use your SKUs to monitor sales trends over time. This will provide a trove of data that you can use to optimise your staffing, prepare your inventory, budget, and even decide which products to invest your marketing spend toward.

If there’s an opportunity to make your SKUs shorter without losing any clarity, take it. The easier you can make your codes to read, the faster it’ll be for staff to find the information they’re looking for.

You can also add dashes in between each unique identifier if you choose. This lets employees scan the codes at a glance to find the information they’re looking for. Be sure not to include any special characters, as these can be misread by software.

The number one piece of advice when you’re incorporating an SKU system into your operation? Don’t do all of the busy-work by hand.

An inventory management system will automatically generate SKUs for each of your unique products and then categorise this data in a single centralised database, creating a single source of truth that you can use to view all of your products in one place.

As a bonus, your IMS will also let you view inventory levels in real-time based on your SKUs and schedule automatic reorder points so you never miss the chance to capitalise on demand. It’s a must for efficiency and better business decisions.

SKU codes are the best way to track products internally, keep tabs on customer demand, and make smart business decisions backed by valuable sales data.

SKUs are surprisingly easy to implement because there aren’t any hard and fast rules. As long as you create a standardised format, keep it simple, and stay consistent, it’s hard to go wrong.

Still, SKUs can be time-consuming to incorporate if you intend on doing everything yourself. If you’d like to automate the process and gain access to dozens of unique features that will help you get the most out of your business data, try Commerce Cloud.

Watch the demo today to see how Salesforce Commerce Cloud can support your omnichannel retail and ecommerce growth.