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Your Ultimate Guide to Stock Keeping Units [+Free SKU Generator]

If you’re a novice or intermediate retailer, you’ve heard the term SKU (Pronounced “skeew”), and probably even used it yourself. Still, you may not know exactly what it is, how it relates to other product management terms and codes, or how to create one yourself. 

This easy to understand post will provide you with everything you need to know about creating an internal SKU system and introduce you to our free-to-use SKU generator. 

Read on to learn what you need to hone your product management system with optimized, unique SKU codes. 

What is a SKU Number? 

SKU stands for ‘Stock Keeping Unit.’ It is a unique alphanumeric code that identifies a product to help retailers keep track of their inventory. SKUs can be created manually or using a SKU generator. 

Most inventory management software and point of sale (POS) system options provide a built-in method to generate SKUs. In some cases, your customer support channel will provide a SKU creation channel as well. 

How do stock-keeping units (SKUs) work? 

Have you ever excitedly made an online purchase with the expectation that you were going to receive your product(s) within a timely fashion only to find that the product was on backorder or out of stock? It’s one of the most disappointing shopping experiences anyone can have. And, one of the keys that keep retailers from delivering this kind of disaster is optimized SKUs. 

SKUs are used for internal inventory management processes within a retail operation -- they are unique to each seller. Moreover, they make it easy to organize, find, search, and reference products for order processing, invoicing, and general sales-related processes. 

[Screenshot source: Gorgias]

By assigning a product SKU to each catalog item, retailers can keep track of product details, product types, and know when inventory is short of stock or taking up excessive space in a warehouse. 

What is the Difference Between SKU, MPN, ASIN, & UPC? 

Everyone has seen strings of numbers, letters, and barcodes on the products they purchase. And, we know they are used to classify the product on some level. 

An SKU is not the only alphanumeric code used to keep track of inventory within a retail operation. And, not all strings of letters and numbers used to define a product are created equal. While all product codes are used to identify individual products within a supply chain, none of them are the same. 

Let’s take a look at some of the main differentiators of SKUs, MPNs, ASINs, and UPCs. 

1. SKU: Stock Keeping Unit

Unique to each retailer, an SKU helps sellers keep track of inventory on a website, in a store, a catalog, or a warehouse. 

2. MPN: Manufacturer Part Number

Created by the manufacturer of a product, the MPN helps internal and external parties communicate about and interact with products; this is essentially a manufacturer’s SKU. 

Because an SKU and MPN are created by two different parties for identification within two different systems, the SKY and MPN must vary from one another. 

3. ASIN: Amazon Standard Identification Number

In a sense, the ASIN is Amazon’s SKU, developed by the company to keep track of their massive catalog. A product’s ASIN helps the company and its third-party retailers sell products effectively. 

[Screenshot source: Amazon]

Again, the ASIN must be unique to the product -- it cannot be the same as the SKU or the MPN. 

4. UPC: Universal Product Code

A global, unique identifier, the UPC code was created as a way to identify a product across all markets. While not a perfect system, UPC has been successful for most manufacturers, retailers, and global marketplaces.

Of course, the UPC does not match the SKU, the MPN, or the ASIN. In fact, UPC codes contain only numbers. 

Where Are SKUs Used? 

When you think of a product SKU, the most common place you think of seeing one is next to a barcode on a box in a warehouse. While SKUs are commonly used in warehouse operations, this isn’t the only place you’ll see them. 

In fact, SKUs are used in all sorts of places. 

  • Warehouses
  • Product Fulfillment Centers
  • Online Store Dashboards
  • Online Marketplace Dashboards (Amazon, Etsy, eBay, etc.)
  • Brick and Mortar Retail Stores
  • Accounting Dashboards
  • Inventory Management System Dashboards
  • Invoices and Billing Statements
  • Receipts
  • Online and Offline Catalogs

SKUs may appear in other places including on paperwork and in reports. Usually, they are only seen by retailers and retail teams, and generally don’t have anything to do with customers, shoppers, or manufacturers. 

Why Are SKUs Important to eCommerce? 

SKUs are crucial to eCommerce operations, more so as your catalog size increases. Assigning an alphanumeric or numeric code to your products (manually or with a SKU generator) helps you keep track of them at different stages of the inventory management journey. 

Inventory Receiving

The first time you will need SKUs to identify your products is during the receiving process. As soon as your products hit the warehouse shelves, you will need to know how many you have, where they are, and what product variations are available. 

Marking each item with a scannable SKU will give your warehouse management team access to accurate information about incoming inventory. Without SKUs, your products will be impossible to organize when they arrive. 

Cross-Channel Sales

The second instance where a SKU becomes necessary is when cross-channel sales happen. If your online store and other marketplace sales aren’t in alignment with a unique internal code to identify transactions, you won’t know when products are in or out of stock across various sales channels (Amazon, eBay, offline, etc.).

Order Fulfillment

The third period when scanning products for an SKU code is paramount is during the picking, packing, and shipping process. When fulfilling orders, you simply need to know what you’re sending to customers. Your internal code will make the process simpler, quicker, and more accurate. Ideally, your customers will receive their correct orders in a timely fashion -- SKUs help to ensure this. 

Returns

The final stage when an SKU is critical is during the returns process. If you have an identifier for the product at hand, you will know where to place it in the warehouse or whether to liquidate or dispose of it. Your unique identifier makes this possible and keeps your stock records up to date. 

What Are Some Best Practices for Creating SKUs? 

Now that you fully understand the reason for using SKUs, it’s time to learn how to create them. Do it effectively by using the following best practices. 

Best Practice #1: Never Start Your SKU With the Number Zero 

One of the first rules of thumb to remember when creating product SKUs for your inventory is to avoid the use of the number zero at the beginning. There’s nothing morally wrong with the number itself, but it isn’t a good idea. 

The main reason the number zero doesn’t work at the beginning of a SKU is because of the way it will be processed in a spreadsheet. If you enter a code like “00FBHRQ3979” into Excel or other spreadsheet software, it will be stored as “FBHRQ3979.” 

Excel will drop the number zero from the beginning of any code or number entered. So, to keep things moving along, just avoid it.  

Best Practice #2: Avoid the Use of Spaces and Special Characters

Spaces and special characters are other SKU elements to avoid. For one, your SKU will be entered into various software, which might remove spaces and characters like @,#,%, and * from your code. And, you want your product identifiers to be easy to understand. 

Anyone who sees the letters, ‘BK,’ might assume this means ‘black.’ Likewise, special characters have connotations that aren’t likely to be relevant in an SKU. For example, ‘$,’ symbolizes money, ‘%,’ symbolizes percentages, and your product identification shouldn’t have anything to do with either of these things. 

So, just keep symbols, spaces, and special characters out of your SKUs to keep things simple. 

Best Practice #3: Don’t Use Product Titles in Your Algorithm or Coding System

Over time, your product titles may change. You might want to update them for readability, relevance, or SEO purposes. So, using the titles of your products in your SKUs is not a good idea. 

Instead, use product identifiers that describe the product’s size, color, shape, and other aspects that won’t change.  Most importantly, use the identifiers that are going to help you and your team best keep track of your inventory. 

Best Practice #4: Keep Each Product SKU Unique -- Don’t Reuse 

Once you’ve created a SKU for a product, it should be used only to identify that specific product. Do not reuse and SKU to identify two similar products. To avoid reuse, try to include as much relevant information about the product in your SKU to differentiate between two items. 

For example, you may sell a handful of black women’s medium t-shirts. If so, include information about brand names and/ or fashion features in your SKUs. 

Or, if you are selling more than one generic fish aquarium with matching dimensions, use numbers or letters to differentiate them in sequence (1, 2, 3, 4, or A, B, C, D). Unique and sequential codes uphold the purpose of your SKUs. 

Best Practice #5: Create Your Own Codes Instead of Prefixing an MPN, ASIN, or UPC

Some retailers have the knee jerk instinct to add a series of numbers or letters to the front or back of an existing product identification code when creating SKUs. While this can be done, it isn’t super helpful because it has no purpose unique to internal operations -- the functionality of a prefixed or suffixed MPN is not ever going to be customized to your processes. 

So, use your own codes. Come up with a list or table of short, one to three-letter or number codes to identify each relevant aspect of your products. 

Here’s an example: 

To avoid confusion, no two codes should be the same. This goes for codes in the same categories as well as varying categories. 

For example, if you’re selling a pair of red Reebok sneakers, your code for the color red and your code for the brand name, Reebok, should be different -- In this case, ‘RE’ won’t be the best code to use for either. 

Best Practice #6: Use Both Numbers AND Letters

Some sellers naturally resonate with either numbers or letters as SKUs. Doing so won’t completely ruin your system. But, an optimized SKU code uses both numbers and letters. 

Both are generally used because, for this application, using numbers and letters in tandem is easier for most people to make sense of. Using a series of letters, numbers, letters, numbers, letters, etc. helps break apart an alphanumeric code, making it easier to read. 

Best Practice #7: Make Your SKUs Succinct

While there is no set number of characters that your SKU must have, use as few characters as possible while creating a fully-functional and helpful product identifier.  

With this said, you need the right amount of characters in a SKU for it to be effective. If your SKUs contain less than seven characters, it’s likely they don’t have enough information. If they contain more than twenty, there’s likely too much being conveyed. 

So, use enough characters to include all the relevant and helpful information you can. Scrap any part of your code that contains irrelevant information. For example, you probably need size and color information, but do you really need to include the date received? In some cases, you might (like when selling food and other perishables). But, in other cases, you won’t, so do what you can to keep your SKUs between seven and twenty characters.  

Best Practice #8: Do Not Use Multiple Characters That Look the Same

The beginning of your SKU isn’t the only place where the number zero should be avoided. Actually, you should think about avoiding it in your code altogether; This is because it looks too much like the letter ‘O.’

If you do use ‘0,’ avoid ‘O.’ Likewise, if you use the letter ‘I,’ avoid the number ‘1.’ If you use the letter ‘g,’ avoid the number ‘9.’ In a nutshell, the letters and numbers you use should never be easily confused with one another. You always want the reader to be able to decipher the meaning of a SKU without a scanner because you never know when technology will fail you. 

Also, when SKUs must be recorded or entered manually, you want to avoid the possibility that the person reading the code is certain of what it says. 

Best Practice #9: Include Relevant Information

What do you and your team need to know about your product(s) most often? Is it size variations? Brand names? Warehouse locations? Whatever is most relevant to the people who have their hands on your products, include it in your SKU. 

And, avoid irrelevant information. Your warehouse workers probably don’t need to know whether a pair of flip flops are made from leather or plastic, so this is probably an identifier that doesn’t need to be in your SKU. Instead, that information should be in your product description and/ or title -- the place where your customers look

If it isn’t relevant to your team or you, and it’s more of an identifier that a customer would be interested in, don’t include it in your SKU. 

Best Practice #10: Start Your SKU With Letters

Most effective SKU generator systems start their codes with letters rather than numbers. This isn’t to say that numbers must never be used at the beginning of an SKU, but letters generally come first for a reason. 

If you use a number at the beginning of your SKU, it can easily be confused with a UPC. Upon first glance, a trained eye will generally scan a barcode looking for a number first when seeking the UPC code and in search of a letter when seeking the SKU. 

So, as best practice, your SKU should include a letter or letters at the beginning. 

Best Practice #11: Consider Returns and Supplier Information When Appropriate

Returns are one of the easiest aspects of your product to forget about when you’re focused on sales. But, do not forget about them.  If your product returns will be handled through a supplier or manufacturer rather than you, the retailer, consider whether you want to include supplier information in your SKU. 

A dropshipping store, for example, is likely to need to know who the supplier is more often than a company who fulfills their own orders. If you think you may need to know the manufacturer or supplier often, consider including this in your SKU. Your returns team will thank you. 

Best Practice #12: For Large Catalogs, Include Storage Location

Another easy-to-forget aspect of your product SKU generator strategy is the storage location of the product. Your staff will want to know what warehouse and/ or section of a warehouse a product should be stored in. This is helpful when picking and fulfilling orders as well as replacing products returns on warehouse shelves. 

So, if it will be helpful (it usually is if you have a large product category or store your products in a warehouse with another retailer), include the storage location of your product in your SKU code for all inventory. 

Best Practice #13: Make SKUs Easy to Understand Using a Set Algorithm

If you create SKUs manually, create an algorithm that includes what you need using the best practices above. If you use a SKU generator, use the same one every time. Otherwise, you will end up with a random, haphazard set of product identifiers that you and your staff will have a difficult time understanding. 

You want SKUs that are logical, readable, and consistent. Codes that are all over the place in nature won’t serve your retail processes in any way. So use a set algorithm that is simple for you and other staff to learn and understand. 

Try This Free SKU Generator 

Now that you understand everything you need to know about creating effective, easy-to-understand SKUs, try using our free SKU generator.

Enter your product type, name, and up to three unique attributes to generate a custom SKU in a matter of seconds. Then, repeat the process for your entire catalog to generate a complete list. Once you have entered the relevant data for all of your products, you can export your list as a CSV to use as you wish. 

Once you try the generator, you will know whether you prefer it to manual SKU creation. Use the codes to update your Shopify dashboard and other marketplaces for the most up-to-date, optimized inventory management processes. 

Final Thoughts

We covered what an SKU is and how it works, looked at the differences between various product identification codes, and discovered where SKUs are used. Then, we found out what makes SKUs so important at every step of the eCommerce inventory management journey and learned 13 best practices for optimized SKU creation. 

After we had a strong understanding of the creation process, we tried a free SKU generator to see if we like the automated or manual approach best. Now that you have all the information you could possibly need, get out there and start creating your own internal product identification codes right away.


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