What is an SKU?

10 min
Stock Keeping Unit [SKU]

If you are a new business owner and just started selling products, you might have heard the word SKU used a lot. 

Most business owners know that SKUs help you track products, but few know the benefits and they’re so important.

Whether you are a long time business owner or a new business owner, have a massive product catalog or a handful of products, you likely have a SKU structure in place or are looking to add one.

We have written this guide to help you understand what an SKU is and why you need it.

What is an SKU?

SKU Definition: Short for Stock Keeping Unit is a unique identifier a business uses to track its inventory.

There isn't a set definition for SKU, unlike UPC. But, you must use an approach that makes things less complicated, and your employees can easily understand the SKU's data and determine it by just looking at the code. Here are some characteristics of SKUs:

  • Alphanumeric
  • Typically between 8 and 12 characters
  • Contains components of a product – color, style, brand, gender, type, and size
  • Unique for each business

Why are SKUs important?

SKUs are vital for inventory management because they help you track your stock in real-time and let you know if you are running low so that you can order necessary items to prevent stockouts. Defining them correctly will ensure that your business is running smoothly. 

Can two products have the same SKU?

No. A SKU is unique to the business selling the items. However, two items could have the same barcode or UPC number.

💡 FURTHER READING: Learn how to create SKU numbers

Benefits of SKUs: speed, insights, and efficiency

Searching SKUs
Filtering products by SKUs in Brahmin Solutions

Tracking Inventory

A well-designed SKU will allow you to improve your inventory control. Giving each product unique SKUs, you can quickly locate stock, orders, shipments, vendor information, sales forecast, and more.

Import your SKUs to a cloud inventory management system and track inventory as it is received, moved, and shipped.

Identify Shrinkage

One important aspect for any business that is managing stock is to track and identify inventory shrinkage, which is when you have less actual inventory than what is on your list. This can be due to entry errors, damaged, lost or stolen inventory. This affects the business bottom line: the overall profitability. Categorizing your inventory with SKUs allows you to see stock movements and track when , where and how stock goes missing which will decrease theft / damage and increase profits.

Better Insights

Managing large quantities of inventory can be difficult for a small business owner. Assigning a unique SKU to every product variation means the quantity of on-hand products is readily known and also gives you deeper insight into your business.

For a fast-growing business, in particular, it is great to have insights on hand so that you can make better sales and marketing decisions.

By analyzing your sales and costs associated with each product, you can quickly identify which products are performing better or worse. Knowing this information allows you to make decisions like discounting your low performing products or bundling them with other better-performing products to boost your sales.

Improve customer satisfaction

The ability to set a unique code for each variant will allow you to track the on-hand quantity of each product variant readily. It will also make both your sales team and customer service team quickly locate products.

Using SKUs, you can set reorder points like Min and Max, allowing you to know when new inventory should be purchased. Setting these reorder points will let you have sufficient stock to meet the demand of your customers and also cut down on extra holding costs.

Connecting with eCommerce Platforms

If you are selling your products across multiple online stores, having one standard code will allow you to link all your channels with your inventory software.

SKU eCommerce Linking
Brahmin Solutions products linked with Shopify products via SKU

By connecting all your channels, your inventory software can provide all your channels real-time updates.

Consider SKUs for your business

SKUs may seem complicated, but they don't have to be if you follow a simple naming structure. They are a fundamental part of inventory management, and successful inventory management contributes to a successful business. We have written a specific guide to help you create SKU numbers for your business. 

If you are looking for an operations platform that allows you to manage orders, inventory, warehouses, 3PLs, production processes, and more, check out Brahmin Solutions. Track your best sellers, reorder automatically, and have access to your business insights in real-time. Request a demo and talk to one of our business experts.

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