What Does SKU Mean? SKU Numbers Explained

By Danica Jovic

June 19, 2023

Introduction: What Does SKU Mean?

The SKU, or stock keeping unit, is an alphanumeric code assigned to retail products. Using an SKU enables retailers to track sales and manage inventories efficiently. The primary use of SKUs is to identify products, but they offer a wealth of other advantages for vendors. Most articles discuss what SKU means in retail, but there are other industries in which SKUs can be helpful. For example, service-oriented businesses (e.g., auto repair shops) use scannable codes for intangible products.

In this guide, we’ll explore how SKUs are used, highlight their benefits for vendors, and offer advice about how to set up an SKU number for each of your products or services.

What Does SKU Mean in Retail?

A retail stock-keeping unit is a scannable retailer code that provides information about products, tracking, and inventory. The SKU is assigned to a product that is part of an inventory. It will be an 8-symbol mixture of letters and numbers in most cases.

The SKU definition outlines the code’s key characteristics:

• Scannability
• Uniqueness
• Letters and numbers
• Assigned to products to assist with sales tracking and inventory management
• Created by the retailer
• Used internally

How to Set Up an SKU Number

There are two main options for creating an SKU number. One is the necessary entering data manually, and the other is using software to create SKUs for you. Using the software is more efficient, and it can also be more accurate. If you choose to enter data manually, it would be paramount to devise a system for creating unique codes that make sense to you as the retailer. For example, if you own a shoe store, you may choose to use specific letters to signify the brand, following a letter or number to denote size, and another letter or pair of letters to describe the color. If you have a standard coding system, you will soon get used to generating new codes for different products, and your employees will be able to create and interpret SKUs quickly.

Once you have either established a system to create SKU numbers manually or installed software, you can print product labels that will contain the SKUs, and use SKU and barcode generators.

Best practice SKU guidelines are as follows:

• Keep SKUs short
• Use clear identifier codes
• Separate information with dashes
• Use a sequence of letters and numbers
• Avoid overcomplicating the system
• Avoid special characters
• Use abbreviations instead of words

How Are SKUs Used?

Whether you are just starting out, or have an established brand or store, SKUs have a wide range of uses. Here are some of the most common SKU purposes for retailers and businesses:

Inventory Management

One of the most important SKU uses for retailers is inventory management. If you have a supply of stock, or a busy store, you can use stock-keeping units to keep track of products sold, update orders, and issue reminders when stock levels are low, and you need to replenish the shelves or virtual aisles. You can also organize your store using “order by” SKU.

Effective inventory management can save time and effort for retailers, and prevent customer disappointment if they try to order a product that is out of stock and minimize losses. It is essential to understand that administrative errors also play a role: By using an SKU on Etsy, for example, you can track overstock to prevent excess ordering, eliminate human error, and update stock levels in real-time.

Sales Analysis

An SKU is far more than a product identifier. Retailers can also use SKUs to collect and analyze sales data linked to product ranges, categories, or individual items. This enables vendors to spot trends and patterns, gain insight into consumer habits, and gauge product popularity. Retailers can use the data available to make well-informed decisions about stock ordering, promotion timing, and expanding product ranges to cater to new trends or changing customer habits.

Enhancing Customer Experience

Technology plays an increasingly influential role in customer experience. Take the straightforward example of going into a store and asking an assistant if they have a particular shoe in your size. In the days when an SKU was not available, the assistant would have to scour the shelves or go into the storeroom or warehouse and check for the relevant size. Today, they can simply scan the code and bring up information about stock levels and location. The customer gets an answer in a matter of seconds, and employees save a massive amount of time and effort. If the product in question is not available, the assistant can recommend similar products or a different branch where said size is still in stock.

SKU numbers can also be beneficial for store planning and merchandising, as they enable retailers to design efficient, organized stores that make finding products easy and stress-free.

Personalization and Product Recommendations

If you shop online, you may have noticed that recommendations pop up regularly based on items you’ve looked at or bought previously. For example, the SKU on Amazon enables the retailer to show you similar products in the range.

Is an SKU the Same as a UPC?

SKUs and UPCs are often talked about in the same articles discussing eCommerce and stock inventory management, but they are not the same. An SKU is a unique code, which is generated by the retailer. A UPC (Universal Product Code) is an external code used for tracking. The UPC will be the same for a single product, regardless of its vendor. UPCs only contain numbers, while SKUs are usually made up of numbers and letters.

Further Reading

• What Is an EIN Number?
• Our Top Picks for Inventory Management Software
• 60 Retail Statistics to Help You Build Your Business

SKU Number Examples

The following example shows how a garden retailer creates and uses SKUs for products, including different types of lawnmowers. As you can see, the retailer uses codes for the type of mower, color, and size.

Category	Code	Item Color	Code	Item Size	Code	SKU
T-shirt	A1	Blue	B3	L	011	A1B3011
T-shirt	A1	Green	B4	L	011	A1B4011
T-shirt	A1	Yellow	B5	M	012	A1B5012
T-shirt	A1	Black	B6	M	012	A1B6012
T-shirt	A1	Blue	B3	XL	013	A1B3013

Every retailer uses its own system or software to generate codes used internally. This means the team should be familiar with the coding system.