SKU: What is a stock-keeping unit for a business?

So, you've just opened a retail store, or maybe you've joined the brilliant online retailers out there and launched an online store—congrats!

If this is the case, then you've likely come across (or are going to come across) a number of retail terminologies that can sometimes feel a bit confusing, especially if you're just starting out.

One of those terms you need to get familiar with is a stock-keeping unit (SKU). It's an important tool that every retailer should know and incorporate into their inventory management strategy.

Don't yet know what SKUs mean and why you need them? Don't worry. This complete guide is going to teach you everything you need to know about SKUs.

Let's get started.

What is a SKU? 

SKU stands for stock-keeping units. It's a scannable code made of letters and numbers that's used to identify a specific product for inventory control purposes. These codes are usually printed on product labels and show details like colour, size, and brand.

Where is the SKU number found? 

Now that you know what it is, let's talk about where you can find them. You'll usually find SKUs used in:

• Retail stores
• Product fulfilment centres
• Warehouses,
• Ecommerce shops
• In catalogues

An SKU is crucial for inventory classification and helps these above businesses track inventory and manage inventory. Suppose you own a brick-and-mortar store, for example, you'd make sure that every product you own is assigned a SKU code before you perform any inventory audit in-store, at any storage units, or other off-site places. This'll give you a better understanding of your inventory.

Examples of SKUs in different business contexts

Let's take a look at some of the different SKUs out there. Here are the main two:

Multi-brand retail business SKU

If your business resells products from lots of different brands or manufacturers, you'll need different SKU formats to cover all necessary product details. This includes not just size, colour, and type, but also the manufacturer.

For example, a supermarket sells food and drink items from lots of different brands. If you fancy cereal, you can choose from Kellog, Weetabix, Nestle, and so on. So, you'd need to keep track of that cereal by brand, as well as by type, flavour, and size.

Let's see this in action. If you work at a supermarket and were asked to create an SKU for your Kellogg's cereal, the SKU for that brand's Corn Flakes, in family-size, might look a little something like this:

• KG: The product’s brand, in this case Kellogg's.
• CFL: The product type, in this case Corn Flakes.
• FM: The product size, in this case, family-sized.

Single-brand DTC business SKU

This type of SKU is for those direct-to-consumer business owners who only sell products that are made by their own brands. In this case you may not want to prioritise adding manufacturer codes to your SKUs. 

For example, a popular clothing brand may want to focus on including details like the type of fabric used and sizing in their SKUs, so that it's easier to manage their warehouses. 

Let’s say you worked at one of these clothing stores and needed to create the SKU for a new bra line.

The SKU for that product in a size 32AA could look something like this: BRA-PNK-32AA

That SKU would translate to:

• BRA: The type of apparel, in this case, a bra.
• PNK: The main colour of the product, in this case pink.
• 32Aa: The size of the product.

What is SKU Vs Universal Product Code (UPC)? 

You've probably heard of SKU codes and UPC being used interchangeably. While they're similar, they're not exactly the same and serve different purposes.

UPC codes (which stands for universal product code FYI) is a 12-digit code, made up of numbers, that's attached to products wherever they're sold for external use.

This means that a product has the same UPC regardless of where it’s being sold whereas different companies assign that product different SKUs. So, SKUs are usually unique to a single retailer, whileUPC barcodes are universal (hence the name).

Now, a lot of retailers use UPCs as SKUs and choose not to generate SKU numbers themselves. However, smaller stores (particularly those that manufacture their own items) may find it helpful to create their own SKU system.

Difference between SKUs Vs serial numbers

Before we talk about the difference between an SKU and a serial number, it's important to know that the term "model number" is often confused with "serial number," but they're different from each other too. So be clear here that we're talking about serial numbers, not model numbers. While SKUs and serial numbers are both used to identify products, they serve different purposes.

As we've explained earlier, retailers create SKUs to manage inventory and group products by characteristics like brand, size, colour, and type. This makes it easier for them to track their stock.

Serial numbers, on the other hand, are unique to each individual product and assigned by the manufacturer. They help identify specific items, which is useful for things like warranties, repairs, and returns. For instance, every iPhone has its own unique serial number.

SKU inventory management

Now it’s time to get practical. This section will cover everything you need to know about SKU inventory management. 

How to create SKU numbers 

Now let's talk about creating SKUS. Follow these best practices to really nail this:

• Create unique SKUs for accurate inventory tracking. Be sure to not make any duplicates, even for variations of the same product.
• When generating SKUs, use only letters and numbers. That means no special characters or punctuation. No one wants to see an exclamation mark in there, trust us!
• Keep it short and logical. You can do this by starting with the most important category, like the brand, make, and then model. Make sure all the important product characteristics are in there, but leave out unnecessary ones.
• Keep the SKU format consistent across all of your own products as this makes managing inventory simpler for everyone.
• Review and update your SKU system regularly to keep it relevant, especially as your products change.

Manual SKU inventory tracking

Manual SKU inventory tracking involves using pen and paper or simple spreadsheets to keep track of stock. It requires physically checking items' print labels and updating records by hand.

While it can be straightforward for small businesses with limited products, it can become time-consuming and prone to errors as inventory grows. So, we don't recommend this.

How to find a SKU number with automated management tools

Now the entire process may seem a little tedious. However, don’t fret because you can automate SKU management, reducing costs and improving the accuracy of your SKU data.

To do this, you'll need a point-of-sale system (POS system) that has integrated inventory management, as well as other tools such as barcoding. Using POS software to manage your inventory lets you track items electronically, in real-time and also automatically update inventory.

Plus, the best POS systems come with built-in analytics that help improve your purchasing processes and come up with effective marketing and sales strategies.

TIP: Learn more about our automated inventory system in our complete guide.

Benefits of using product SKUs in your store

Here are some of the main perks of using product SKUs:

Improved inventory management

You know that feeling when you can't find that one item buried somewhere in your store?Well, with SKUs, that's a thing of the past! 

Each product gets its own special code, making it super easy to track using your POS hardware. So, when a customer asks for that specific colour of sneakers or that special edition blender, you can find it in a flash. Plus, it helps you keep tabs on your best-sellers and what's gathering dust on the shelves.

SKU tracking effects on customer experience

Imagine your customer walks into your store, all excited to buy something, but you're out of stock! That's going to really frustrate them. SKUs help prevent that disappointment. By keeping track of your inventory accurately, you can make sure your shelves are always stocked with the goodies your customers want. No more empty shelves or waiting weeks for a restock.

SKU codes to forecast sales and optimise supply chain 

Now, let's talk about being ahead of the game. Those little SKU codes contain a wealth of information. They tell you what's selling and what's not so popular. With that sales data, you can predict future sales trends and plan your inventory accordingly.

On top of this, you can streamline your supply chain by understanding which products are in demand and when, and you can fine-tune your ordering process, ensuring you always have just the right amount of stock on hand.

Managing SKU numbers with Epos Now

With Epos Now, you've got everything you need to streamline your inventory management, including printing labels for all your products with SKUs.

If you're starting from scratch with SKUs, no worries! Just come up with a simple code that reflects key details like item type, size, colour, and brand. Not feeling creative? You can always use a handy SKU generator tool to do the heavy lifting for you.

Once you're set with your SKU system, hop into your Epos Now POS and head to your Back Office. Navigate to "Manage" on the left-hand tab. Click on "Products," then "Products List." Hit "Add Product" located in the top right corner of the page. A modal window will pop up, allowing you to input all the necessary details. Once you've filled in the required information, click "Save." Voila! Your product will now be visible in the Product List for easy access and management.