Have you ever been curious about how e-commerce websites handle thousands of product catalogs and still have a smooth operation? The secret lies in the simple methodology: SKU (or Product SKU), i.e., Stock Keeping Unit. SKUs can help in product organization for businesses by locating and tracing products to ensure an efficient operation. In this blog, we will discuss what a SKU is, its importance in your Shopify store, and how you can use it.
What is the SKU number?
Stock Keeping Units (SKUs) are internal codes that businesses use in ecommerce inventory management and sales analysis. For example, you can use sales reports by product variant SKU to analyze performance trends. Most businesses label SKUs to manage their stock or products. It makes it easy to process returns, exchanges or address customer queries regarding specific products.
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Format and Best Practices for SKUs
There is a certain format you should always adhere to when creating an SKU. Here are some of the best practices to follow:
- Characters: Include numbers, letters, or a combination of both.
- Avoid similar-looking characters such as the number 0 and the letters O, 1, and I.
- Avoid special characters or spaces, as they may create problems in search engines or software programs. Instead, use dashes or underscores to structure attributes like size, color, material, or storage location.
- Length: SKUs should be short—between 4–16 characters, depending on your product type. You may only need SKUs as short as 4–8 characters for small catalogs.
- Keep it simple: SKUs should be logical and easy for your team to read. Every character needs to have a specific role related to order, picking, and packing.
- Be unique: All product variants should have their own SKU, which means you will need to come up with a new, individual code for each one. For example, if you are selling a mug that comes in three different colors, each color needs a unique SKU.
SKU Number and Format Example
1. Online Grocery Store
Anita has a grocery store, and she categorizes products based on their categories, brands, and sizes. The SKU format would be like CCC-BBB-SSS, where —
- CCC: category (e.g., 101 = dairy)
- BBB: brand (e.g., 567 = Brand X)
- SSS: size (e.g., 500 = 500 ml bottle)
So, a 500 ml carton of Brand X milk could have a SKU of 101-567-500.
2. Online Jewelry Store
Raj sells handmade jewelry and categorizes his items by material, gemstone, and design. His SKU format is MMM_GGG_DD, where—
- MMM = material (e.g., SIL for silver)
- GGG = gemstone (e.g., AMT for amethyst)
- DD = design (e.g., 03 for style #3)
So, the Stock Keeping Unit number SIL_AMT_03 means silver necklace, amethyst gemstone, and design #3.
Let’s understand SKUs in depth for an ecommerce platform, say Shopify.
Why are SKUs important for your Shopify store?
A SKU system is essential for inventory and retail management. It helps in the proper Shopify inventory tracking of stock to avoid any kind of inventory issues like stockouts or overstocking and also allows easy visibility of sales trends.
Here’s why SKUs matter:
1. Track Your Store and Sales Trends or Inventory Levels
SKUs are unique identifiers assigned to each variant of a product and are unique with respect to item attributes (e.g., size, color, or style). With live updates to inventory levels, businesses are informed of stock status in real time, which helps them make better restocking and selling decisions.
For instance, a shoe retailer can identify which size and color of running shoes are sold the most and adjust inventory based on variants accordingly.
Read Also: Why Retailers Need Distributed Order Management
2. Calculate Reorder Points
SKUs also enable retailers to detect low stock levels and determine when an item should be reordered at the optimal time. Through the use of sales velocity calculated against individual SKUs, businesses can identify when stock needs to be replenished in order to maintain adequate levels without falling into the trap of overstocking.
For instance, if a product moves 10 units weekly and it takes two weeks to restock, the reorder point would be set at 20 units. There are many apps in the Shopify app store that can tell you when to reorder a product based on sales history using SKU data and supplier lead times.
3. Forecast Demand and Sales
SKU systems can provide the information required for accurate sales forecasting so retailers can plan for seasonal demand, forecast staffing optimizations, and manage cash flow.
Insights from SKU data can help with:
- When to hire more staff for peak times.
- How much inventory should be prepared for weekends or holiday seasons?
- Deciding which products to discount or discontinue over those that sell more than expected.
For example, a clothing retailer might stock up on winter coats in December, predicting large sales, and minimize dead stock on out-of-season items such as swimsuits.
4. Plan Product Displays
SKU data can help determine which products are selling most and least so that online merchants can build strategies accordingly.
For example:
- Put high-demand products at eye level on store shelves or on the homepage of an online shop.
- Rotate slower-selling products to a more visible area by using SKU sales data. Both integrations and shelf talkers (generally digital) will be able to track this performance over time.
5. Upsell and cross-sell products
The better the customer experience, the better the chance of sales. Using SKU data, retailers can suggest complementary products.
For Example:
- If someone purchases a camera, the SKU data will suggest a memory card or tripod that is compatible with the device.
- In the case of out-of-stock items, SKUs are also useful as retail staff or the online system can suggest an alternative, similar product.
Conclusion
An effective SKU system can help retailers with sales analysis, demand forecasting, merchandising, and customer experience, in addition to inventory management. SKU numbers are the cornerstone for the smooth and effective operation of both ecommerce and physical stores.
Organize Your Shopify Store With SKU!
Ignitiv, your Shopify development partner can help you organize your ecommerce store with SKUs for seamless inventory management, increased sales and satisfied customers. Get a free consultation today!
FAQs
Here are some tips for organizing products in Shopify:
- Use Collections: Use collections to organize products in a way that makes it easier for customers to find what they want.
- Use Tags: Group and sort products to find them easily for customers.
- Optimize Collection Pages: Work on SEO. The more visibility, the more the sales.
- Establish Trust: Include trust elements such as comments and reviews.
- Continuous improvement: Monitor data and continuously improve your organization’s strategy
A Stock Keeping Unit (SKU) is a unique identifier for tracking products in inventory management. It is crucial for efficient inventory management, for example,
- Accurate tracking,
- Reordering, and
- Financial analysis in supply chain operations.
al Product Code) is not the same as a serial number.
UPC (Universal Product Code): It is a 12-digit code that specifies the type of product. It is the same for all items of that type and is mainly used for external tracking.
Serial number: It is a code that is unique to a product. This is helpful in tracking specific items, mainly used for maintenance, warranty, or registration purposes.
SKU efficiency is defined as the measure of assessment and optimization of stock-keeping units to improve operational efficiency and minimize cost. Commonly referred to as SKU rationalization or SKU optimization, SKU efficiency is a strategic solution that retailers can use to drive operational efficiencies, streamline inventory management, and improve overall business agility.
SKUs or stock-keeping units, in general are internal labels for inventory within an organization, while barcodes are machine-readable codes used for products that need to be scanned and tracked.
