Definition of SKU in e-commerce
SKU is a term frequently used in e-commerce. What is behind this acronym and what is its significance for online retailing?
Good merchandise invoicing is the key to retail success. For this purpose, a special tool, the SKU number, was invented.
SKU stands for Stock Keeping Unit, which means “stock keeping unit”. It is an individual registration number assigned to each product within the company to facilitate inventory.
The SKU code can contain any information: brand, product name, type of packaging, volume, weight, material, storage location, etc.
The identifier works on the same principle as the item code or barcode. The difference is that the barcode is universal, while the SKU number applies within one company.
In most cases, the SKU identifier is a numeric code, but sometimes it can also contain letters, for example to identify a brand.
Functions of the SKU number
The SKU identification system can enable a company to solve various tasks:
- Inventory optimisation:
Inventory in retail helps to avoid unnecessary costs. For this reason, this process must be perfectly organised. Thanks to uniform labeling using the SKU number, the employees of your online shop can keep track of the amount of goods in stock and replenish stocks in time.
- Monitoring lost and damaged goods:
The spoilage or loss of products can occur at any stage of the e-commerce logistics chain. It is important to catch this in time, exclude units from the inventory and carefully analyse the reasons. The SKU code makes it easy to track which product became a slow-mover at which stage.
- Simplifying the operation of an online shop:
The identifier helps to avoid customers ordering and paying for goods that are already out of stock. The identifier enables timely updating of the availability of products in an online shop.
- Sales analysis:
Without a thorough analysis, it is not possible to develop a business strategy. The SKU number can be used to determine which products sell best in your online shop, for example, and which are uninteresting to the customer.
What makes a good SKU?
Because the SKU number is for internal use, it is often unique to each company. There is no standardised scheme for compiling SKU codes.
However, some pointers can help you build a more effective labeling system for your e-commerce. A good SKU is thus:
- easy to read: the aim of the SKU number is to simplify, not complicate, categorisation and goods monitoring.
- clearly understandable for all employees: the team needs to know how the system of SKU codes works in your company so that there are no misunderstandings when working together.
- not too long (optimal are) 6-8 characters: This is the length that is accepted in most online shops.
Of course, a SKU number can contain more than 8 characters, but such long codes are usually used by the companies with a very wide range of products.
Assignment of a SKU number: Example
SKU is not universal. Each company assigns an SKU number of its own choice. You can invent your own formulas for labeling items in your online shop.
Accordingly, different companies may assign different SKU codes even for identical products.
As for the information encoded in SKU, the following characteristics are usually included in this identifier:
- Packaging type and its characteristics
- Product size
In your SKU codes, you can of course include more characteristics of your products. However, pay attention to the optimal length of the identifier: it is important not to include too many product features in one SKU number.
All information can be in any order and reduction as you see fit in your online shop.
Let’s look at how you can assign a SKU:
For example, let’s say your online shop sells chocolate called “Sweet Land”. Let’s use the brand as a basis and abbreviate: SL.
The chocolate is available in the following varieties: milk chocolate (marked M) and dark chocolate (marked B).
Your online shop offers the product in 100g and 200g sizes. Let’s call this feature 0100 and 0200 respectively. Then the SKU number for this product group could look like this: SL-M-0200, i.e. we infer from the identifier that it is a 200g milk chocolate of the brand “Sweet Land”.
You can create SKU codes for your e-commerce either yourself or automatically using a code generator.