Guide to SKU codes: definition, benefits and implementation

When you work in ecommerce and logistics, you’ll come across stock-keeping unit’s (SKU) every single day. SKUs are an alphanumeric code that identifies a product and helps you track inventory for your retail business.

SKU’s are a key part of inventory management, and are used to control, track and monitor products through their journey from warehouse to customer. This guide will tell you everything you need to know about SKU codes, how to create them and how they can be used.

What is an SKU code?

SKU stands for stock-keeping unit, and is a standardised set of alphanumeric figures usually found underneath the barcode on a product. SKU codes (often pronounced “skew”) are a way to identify and classify individual products, enabling businesses to organise and monitor their inventory effectively. 

The purpose of the code is to help businesses identify essential information about the product; including its brand, model, colour, size and other characteristics. 

SKU vs Barcode: What is the difference?

As previously mentioned, SKU codes can be found alongside the barcode on a product, and while similar, the SKU code and barcode have slightly different functions. 

SKUs are internal codes created by the merchant, retailer or business to track and manage their unique inventory, while barcodes are a visual representation of data that can be scanned using barcode readers. Barcodes allow for quick and accurate identification of an item at the point of sale or during inventory tracking. SKU codes are internal identifiers while barcodes rely on a centralised database to identify product details.

Both the barcode and SKU are needed to effectively manage the product during the sales process.

What are the benefits of using SKU codes?

All products in your inventory should have their own unique SKU code, and they are a crucial way to manage inventory, accurately track products, facilitate restocking and to create reports on product performance and sales.

Manage inventory

Each product in your inventory will have a unique identifying alphanumeric SKU code which makes it easier to identify and locate items within the inventory system. For ecommerce businesses, SKU codes play a crucial role in managing product listings and inventory. SKU codes help distinguish the different product variants on your website, making it easier to fulfil orders.

Product tracking

Knowing where and when your product will arrive at your door is vital data for both merchants and consumers. This is why product tracking is so important. SKU codes help merchants and logistics keep an eye on their products’ location. SKU codes help quickly and accurately locate specific products, enabling efficient order fulfilment and reducing shipping errors. This will improve customer service.

Restocking processes

SKU codes are also valuable for letting you know the status of your inventory stock levels. Being aware of your minimum and maximum stock levels is an important aspect of inventory and warehouse management. SKU codes can accurately track item quantities, enabling businesses to know precisely much of a particular product they have left. This helps avoid stockouts and reduces holding costs.

Improved sales performance

SKU codes help improve overall sales performance and analysis by tracking the sales data of each individual item. This helps merchants see what products are selling well and what products are underperforming. This data can then be used to make decisions regarding pricing and marketing strategies.

How can I create an SKU code?

So how do you go about creating an SKU code for your products? SKU codes are internal business codes used to identify items, so as a merchant you can make them unique to your business. Here is how you can generate an SKU code.

1. Create a description of the product. Note its identifying features such as brand, model, colour, size.
2. Choose a Top Level Identifier. These are the first 2 or 3 digits that represent a department, location, store category or supplier. This allows you to instantly know the group and location of any product at a glance. 
3. Then create an attribute for each of the product’s characteristics. You can use both letters and numbers to give characteristics. 
4. Finish with a sequential number, such as 002, 003, or 004. This helps make the setup easier and helps you identify older and newer items in a product line. 
5. Insert the SKU code into your Inventory Management System. This way you can easily track your inventory and know exactly what it consists of. 

SKU code example 

Sm = Top Level Identifier

fros = Unique characteristics

175 = Which version of the product it is

SM-fros-175 = SKU code

A good tip for creating SKUs and avoiding errors is to make sure you don’t use too many letters that look like numbers, and vice versa.

SKU Codes FAQ

1. What does SKU stand for?

SKU stands for stock-keeping unit.

2. How is a SKU code different from a barcode?

SKUs are internal codes created by the merchant, retailer or business to track and manage their unique inventory, while barcodes are a visual representation of data that can be scanned using barcode readers.

3. Can I use my own system for creating SKU codes?

Yes! While it is possible to generate a random SKU for your products, it might be more helpful for ecommerce businesses to create their own systems of tracking and monitoring products. While a little more time consuming, there are a number of inventory tools you can leverage to make the process easier and more adaptable to your needs.

4. Can I change or update SKU codes for existing products?

No, unfortunately once an SKU has been created for a listing there is no way to change it. You would need to delete that listing and create a new one with a new SKU.

5. Can I use SKU codes for products with multiple variations?

Yes, you can use SKU codes for products with multiple variations, however all the SKUs will be slightly different to make sure you can effectively track that specific product. It is recommended no two products should contain the exact same SKU to avoid shipping errors.