SKU 101: Guide to Stock-Keeping Unit and How to Use It in eCommerce

Stock-keeping units (SKUs) are essential for retailers. They let you track inventory quantity and stock movements without having to do physical checks every day.

But what do SKUs really do, and how do you make them? Read on for a comprehensive guide on SKUs!

What Is a Stock Keeping Unit (SKU)?

A stock-keeping unit (SKU) is an alphanumeric code assigned to each of your products. They usually come in the form of scannable barcodes printed on labels. A SKU usually contains the product’s details like its price, variant, size and more.

Each product variant has a unique SKU. So, for example, you have purple and yellow T-shirts in three sizes each: small, medium and large. Each variant of these T-shirts has its own SKU, meaning you have six SKUs. 

Why do you need unique SKUs for each variant? This is to prevent mix-ups during the picking process. If a SKU only registers the color, your picker might retrieve T-shirts of the wrong size.

Why Are SKUs Important?

SKUs are important for stock tracking and sales data collecting. Tracking the movement of SKUs alongside customer orders means you know what products are selling and which variants are most popular. This way, you can anticipate high demand by stocking up on popular items.

SKUs are also often used for product recommendations in online stores. Let’s say a customer puts an action movie DVD in their cart. Your system can search for similar SKUs and recommend them to other action movies. This might trigger an extra purchase and increase your profits.

Stock Keeping Units (SKU) vs Universal Product Codes (UPC)

SKUs and UPCs are used for similar things. They both track inventory and stock levels. But there’s one key difference.

SKUs are retailer-specific. Even if two companies sell identical items, the SKUs will be different. Meanwhile, UPCs are universal, as the name implies. The same product will have the same UPCs across all retailers.

SKUs are more flexible than UPCs because they can either be printed in text or as a barcode. Meanwhile, UPCs can only be printed as a barcode. This means humans can easily read SKUs, while UPCs need a barcode scanner.

How Do You Create SKU Numbers?

You can create SKU numbers by splitting an alphanumeric string into different parts and defining each of them. Let’s take a look at the steps to create a SKU number:

  1. Make a top-level identifier: The first two or three digits of a SKU are a general classification of the product. These categories can be anything. Some examples include the product’s type, brand, manufacturer and department.
  2. Define a unique identifier: The middle part of the SKU is usually for unique identifiers like the item’s size, material and color. 
  3. Finish with a sequential number: The last bit of the SKU is usually a sequential number that shows when it arrived in your warehouse. This means you won’t have a hard time calculating stock. Sequential numbers also help you prioritize selling items that have been in the warehouse longer.
  4. Input the SKUs into your inventory management system or point-of-sale: Manually managing hundreds or thousands of SKUs is extremely hard. That’s why the next step is to input your SKU in a database provided by your point-of-sale (POS) or inventory management system.
  5. Print SKU barcodes: Your POS system will convert the SKU numbers into barcodes. Print them and attach them with labels to your products.

What does a SKU number look like? Here’s an example SKU for an item sold at a clothing retail store:

  • JKS01YLS001

Here’s the code broken down:

  • JK: Jacket
  • S01: Style 01
  • YL: Yellow
  • S: Small
  • 001: First product at the warehouse

As you can see, the SKU system defines everything about the item to its most minute details. By reading the code, a picker can tell it’s a small yellow Style 01 jacket. They can also tell this is the first jacket of that type in the warehouse. From this information, they can send out the right item when a customer orders it.

Top 5 Uses of SKUs for Business

Now that we’ve learned what SKUs are and how to make them, it’s time to learn their uses. There are five major uses of SKUs in businesses.

1. Analysis

SKUs can track which items are selling and which ones aren’t. This helps you anticipate customer demand by purchasing more or less of certain products. 

You can use SKU tracking data to predict which items might be top sellers so you can order more and maximize revenue. Conversely, you can reduce orders on items that aren’t selling well to prevent overstocking. Keeping inventory levels manageable also lets you save money on storage space.

SKUs don’t just give you insight into inventory. You can glean some behavioral insights, like learning which items are often bought together. This way, you can consider selling them as a package to further drive sales.

2. Inventory Management

SKU barcodes make inventory management easier through real-time tracking. As products arrive and leave your warehouse, your staff will scan their barcodes. This lets you monitor the stock levels of each item you have, even if you have multiple fulfillment centers.

More advanced warehouse management systems will even alert you when items are low in stock. By setting reorder points, you can prevent your most popular products from running out of stock. This prevents customers from shopping from other stores if something isn’t available.

3. Customer Assistance

SKUs organize your products so your warehouse team can easily find them. This means they can pick and pack goods faster, decreasing customer wait time. Faster deliveries mean happier consumers. This is especially important if you promise two-day delivery for your products.

4. Advertising and Marketing

Some eCommerce retailers use SKUs when advertising their products. They use this to ensure customers view the items they’re selling. 

SKUs also work as an anti-poaching measure. When you promote a product based on its SKU, competitors can’t easily see which products you’re promoting because SKUs aren’t usually public. This makes customer poaching with lower prices and discounts tougher.

5. Product Recommendations

SKUs categorize items to make product recommendations easier. Your eCommerce platform can upsell or cross-sell other products to your customers based on what items they have in the cart. 

Product recommendations usually show up on the checkout page just before people get their credit cards out. It can also “save” a sale by recommending similar products when the product a customer wants is out of stock.

Key Takeaways

SKUs don’t just help your pickers retrieve the right items. You can use SKU information for a variety of purposes, like behavioral analytics, demand prediction and product recommendations.

However, managing hundreds of SKU codes isn’t easy. You might need inventory management software to reliably handle all of them. 


Is a barcode a SKU?

A barcode isn’t a SKU by itself. A SKU can be converted into a barcode, but barcodes can contain a variety of information.

What makes a good SKU?

A good SKU needs to contain the key details of a product without being overly long. Some essential details to include are size, color, category and order it arrived in the warehouse.

How are SKUs used in eCommerce?

SKUs are used in eCommerce in many different ways. Some of the more popular uses include inventory management, product recommendations and analysis.

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