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What is a Stock Keeping Unit (SKU)?
inventory management

What is a Stock Keeping Unit (SKU)?

Consumers often fail to recognise the difference between stock-keeping units (SKUs) and barcodes. Still, as a product seller — especially if you operate a small business — it’s essential to understand the differences between the codes and SKUs. 

While both help manage product inventory and track sales, their specific meanings and implications for your business differ. Understanding the difference helps you make better decisions for your company’s unique situation.

What does SKU stand for? 

If you’re wondering, ‘what is SKU?’ we should start with defining the acronym. SKU stands for Stock Keeping Unit. It is also sometimes known as the product code (not to be confused with a barcode).

Learn more about SKUs

SKU refers to a code that identifies all your product features. It allows you to keep track of your inventory with ease. SKUs are alpha-numeric-based and usually consist of eight digits. Companies of any size can generate SKUs easily. It’s a good idea to make your first task a list of the variants that describe your product or activity:

  • Type
  • Brand
  • Colour
  • Size
  • Gender
  • Stock location
  • Origin
  • Purchase date

Other essential information. 

For example, say you’re selling red boots for women in size 6. You might create an SKU using the following:

  • Colour: RD (for red)
  • Type: BTS (for boots)
  • Gender: W
  • Size: 06

You can put it together to get the SKU RD-BTS-W-06. While customers may not notice that any of this has meaning, this SKU easily tells you valuable information about the product to track and organise inventory.

How to create SKU numbers

You can create SKU numbers using our free SKU Code Generator to create your own SKUs. 

Examples of good SKUs: 

If you’re selling novelty coffee mugs and they come in three different colours, then the SKUs might look something like this:

Coffee Mug Red, model no.1 = CM01-R

Coffee Mug White, model no.1 = CM01-W

Coffee Mug blue, model no.1 = CM01-B

In the example, we have used the colour variant, which distinguishes the items, as the last value in the SKU. By suffixing the SKU with the variant, we make the SKU easy to comprehend while still grouping all the coffee mugs with CM01 for ease of use.

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Four primary reasons why a small business should use SKUs

  1. SKUs increase your company’s efficiency and productivity by facilitating operations (sales to inventory) to sort and search at every stage of the sales process. Most of all, the SKUs help you keep track of every item in real time.
  2. They improve your inventory management dramatically by simplifying tracking inventory to prevent any stock-outs. SKUs also simplifies the management of multi-location stock.
  3. They enhance quality control and customer satisfaction by decreasing human errors and allowing for faster delivery to your customers.
  4. SKUs boost profitability by better analysing your stock and sales which facilitates better decision-making.

Best practices to optimise SKU setup

Setting up SKUs is easy, but it’s a good idea to follow a few rules to maximise their use. It’s beneficial to ensure you never use the same SKU for different products and avoid using a manufacturer’s SKU, as they’re often too long. If you change suppliers, they become meaningless to your business.

Here are a few suggestions to make formatting easier for your company:

  1. The format should always be the same and easy to understand.
  2. Letters and digits should have a meaning (e.g., S, M, L, XL).
  3. Begin with a letter and never with a zero – it’s easy for humans or software to misread.
  4. Keep it short: between 8 and 12 characters.

Selecting the right apps to fully benefit from your SKUs

A SKU is a code that requires a link to a tracking system that ties all small business components together. To optimise your organisation easily and track SKUs, you can choose an intelligent and reliable online inventory and order system which integrates with QuickBooks.

Inventory management software connected to a smart accounting application takes your business to the next level. Integrating seamlessly with QuickBooks Online allows you to seamlessly sync information, including:

  • Invoices
  • Purchase orders
  • Products
  • Inventory
  • Customers
  • Suppliers

Don’t underestimate the benefit of creating SKUs. If you’re a small business, there are many tools on the market to help you manage and make the most of your SKU system. Managing SKUs properly boosts and facilitates your activity in many ways.

What is the difference between a SKU and UPC?

It’s frequently easy to confuse SKUs and Universal Product Codes (UPC). SKUs differ from UPCs in many ways. A UPC is numeric-based, universal, and consists of 12 digits typically accompanying a barcode. 

This number allows you to keep track of a product at various points in the supply chain, and it’s mandatory for products you sell through the retail supply chain.

An international organisation — GS1, formerly known as the Uniform Product Code Council — generates and issues the UPCs to ensure the standards. This is the organisation to turn to if you have questions or concerns regarding the legitimacy or compliance of any UPCs you purchase.

Understanding barcodes

The barcode remains the same 12-digit code for each product, regardless of the retailer selling it. This system is easier for your customers to find a specific item at your retail location and know they’re receiving the same item. It distinguishes barcodes from the SKU codes that are unique to your business.

When you manufacture goods or create products, you need to purchase UPCs to ensure the governing body doesn’t issue identical UPCs for two different items. Companies that provide UPCs often sell them online, and most companies maintain rigid integrity standards to prevent duplicate codes on the market. It’s always a good idea to vet the UPC provider you choose.

If your company sells products on a global scale, certain countries may require a specialised version of a UPC. This 13-digit code is an International Article Number (IAN) or a European Article Number (EAN). 

If you’re uncertain which code to select for a country where your company plans to sell its products, you can check with the retailer you sell through.

As a small business owner, you want to help your customers find the products and items in your store. SKUs and barcodes can help you track inventory and sales. Try QuickBooks inventory management software with a 30-day free trial if you want efficient software that takes your business to new heights.  

Manage your inventory seamlessly with QuickBooks Inventory Management Software