What Is an SKU?

An SKU is a unique code that businesses assign to each product they sell. This is done to track inventory and sales. No two products should have the same SKU, even if they look similar. For example, a medium-sized green t-shirt gets a different code than a large-sized green t-shirt. These codes are usually 8 to 12 characters long and consist of letters and numbers. The main purpose of an SKU is to make it easier to determine what’s selling and when it's time to reorder. Companies implement SKU systems to reduce inventory errors and to make effective purchasing decisions based on accurate sales data rather than imprecise guesswork.

How SKUs Work

• Code assignment: A unique alphanumeric code captures the main attributes of a product, such as category, size, and color
• Database entry: SKUs are logged into an inventory management system along with product details, costs, and quantity
• Tracking products: Every item that sells, is returned, or is in transit is tracked, and the system updates its status in real time
• Scanning items: When SKUs are scanned at checkout, the system reduces the inventory count accordingly
• Sales analysis: SKU data shows which items are in demand and which products are occupying space that could be freed up. It helps you assess profitability metrics and maintain an efficient inventory.

How to Create Effective SKUs

Creating an effective SKU starts by defining a product. This involves identifying the main attributes of a product. For example, if you’re assigning an SKU to a t-shirt, determine its color, size, or supplier. Use the first few characters to indicate the product category, like SHI for shirts and SHO for shoes. Add more attributes, such as BLK for black, and SM for small. Add other product descriptions in a similar manner and keep the code between 8 and 12 characters.

Best Practices for SKU Management

• Be consistent across all product categories: create SKUs in the same way
• Keep the SKU codes simple and easy to understand to avoid confusion
• Document what each character means so new staff can learn it quickly
• Conduct regular checks to make sure the physical inventory matches what your system shows
• Pair the SKUs with barcodes to make packages scannable