A stock-keeping unit (SKU) is an alphanumeric code that identifies a product and helps you track inventory for your retail business.
What Is an SKU Number? A Complete Guide
This article is part of a larger series on Retail Management.
Unlike a universal product code (UPC), which is a standardized 12-digit identifier assigned by manufacturers, an SKU is customizable and can include details like department, style, gender, size, and color. You can create SKU numbers manually or generate them through inventory management or point-of-sale (POS) systems.
Key Takeaways:
- SKU is different from UPC—SKU is created and managed by retailers, while UPC is a standard identifier assigned by manufacturers.
- SKUs can be structured with key product details, such as category, size, and color, making it easier to organize and manage inventory effectively.
- Inventory management systems, POS systems, and barcode generators simplify SKU creation, tracking, and organization, improving overall efficiency in managing stock levels and sales.
How Do SKU Numbers Work?
SKU numbers play a crucial role in inventory management by serving as unique identifiers for each product in your store. When a product is assigned an SKU, it provides detailed information about the item, such as its type, color, size, and other distinguishing features, all embedded within a single alphanumeric code.
When all your products have SKU numbers, it becomes easier to monitor stock levels, reorder products, and identify sales trends. For instance, when a customer purchases an item, the SKU number is scanned, automatically updating inventory counts and sales data. This helps you avoid stockouts and overstocking and makes it easy for your employees to locate and manage items within your store or warehouse.
Creating & Managing SKU Numbers
Follow the steps below and watch our video to create an SKU number system and management process that fits the unique needs of your business:
With Square for Retail, you can add SKUs to each of your products, generate corresponding barcodes, and print them on product tags. Then, as you scan your SKUs for sales or counts, Square’s inventory system will automatically track product levels, locations, and more. Visit Square for Retail.
Step 1: Choose a Top-level Identifier
The first two or three digits/characters of each SKU should represent a top-level identifier. This can be a department, store category, or even a supplier. With this, a glance at an SKU number identifies the top-level merchandising group and location of any product in your store. You can also use this section to identify store locations if you run multiple stores.
Some retailers prefer to use the most general trait as the first identifier and then work down from there. For example, start with the identifier for jeans before getting into style and size.
Here are a few important top-level identifiers to include in your SKUs to help organize your products:
If you operate multiple stores or sell items online or at markets, using a Store Identifier in your SKUs allows you to track inventory and sales by location. Even if you plan to expand in the future, leaving a placeholder for this identifier now will save time on restructuring later.
Departments serve as top-level identifiers to track merchandise locations within your store. Including a Department Identifier in your SKU helps locate items quickly and enables sales reporting by department. This helps you spot underperforming areas that may benefit from repositioning, improved traffic flow, or enhanced displays.
Step 2: Assign Unique Identifiers
It’s helpful to use the middle section of SKU numbers to assign unique features, such as size, color, item type, or subcategory, to your product―whatever makes sense when organizing the products you sell. To prevent user error, don’t use numbers that look like letters and vice versa when assigning your SKUs.
Here are a few unique identifiers that you may include in your SKUs to help organize and track your products more effectively:
If you sell on multiple channels (e.g., in-store, online, social media), consider adding a Channel Identifier to your SKUs to compare sales across platforms. For example, use “AMZ” for Amazon or “SHO” for Shopify. This approach is also helpful if you currently sell on only one channel, allowing room for future expansion.
A variation identifier helps customers and staff easily identify products by color or size and allows you to track which options are most popular. For example:
01120001M = Jeans (01), Flare-leg (12), Medium (M)
09120001L = Dress Pants (09), Flare-leg (12), Large (L)
Small retailers can add a Subcategory Identifier to SKUs for detailed inventory tracking. For example, within a Candy category, assign codes for subcategories like Candy Bars, Lollipops, and Boxed Chocolates.
Step 3: Finish With a Sequential Number
Using sequential numbering―like 001, 002, 003―for the final series of an SKU number makes setup easy and also helps you identify older versus newer items in a product line. In some cases, tying the final series of an SKU number to a supplier product number can be helpful too. Again, use whatever makes logical sense for the products you sell.
Step 4: Add SKUs to Your Inventory Management System
With your SKU number system set to go, it’s time to add your SKUs to the products in your inventory management system. You can add your SKUs and track inventory by hand in notebooks or by using spreadsheets, but it is far easier and more efficient to use a retail POS with inventory tracking.
As you can see in the images below, on Square for Retail, as you add products to your inventory catalog, each product page will have a field where you can add your custom SKU number. With Square, there is also the option for the software to generate your SKUs for you if you don’t want to spend time creating your own SKU system.
Add your custom SKU or let Square for Retail generate one for you.
Read our Square for Retail review to learn more about its features before signing up for your free account.
Step 5: Create & Print Barcode Labels
Use our barcode generator below to start printing your barcodes straight from your computer.
Barcode Generator
Once you have added your SKU codes into your inventory system, you will want to create scannable versions of your SKUs, or barcodes, to include on your product labels for easy checkout and inventory counting.
Check out our guide to the best barcode label printers to make this process as easy as possible.
Alternatively, using Square for Retail will allow you to print product labels with your SKU numbers and corresponding barcodes directly from your inventory catalog. Then, as you scan items, your inventory system can track products based on their SKUs.
You can print labels with your custom SKU directly from your Square for Retail inventory catalog.
SKU Number Examples
Now that you know how to create SKU numbers, let’s look at some additional examples of this SKU number framework strategy in action.
Simple Top-level Identifier
Here’s a simple numeric SKU number system that uses just one top-level identifier in a six-digit SKU to manage inventory at a convenience store. Notice that the first two numbers represent each category of goods at the store. The next four numbers are a sequential numbering system. As long as you don’t have more than 99 departments, or over 9,999 products in a given department, this system works and is simple to enter and maintain in any POS system.
Category | Category # | SKU Numbers: Category+Sequential # |
|---|---|---|
Dry Grocery | 01 | 010000, 010001, 010002 |
Pet Food | 02 | 020000, 020001, 020002 |
Snacks | 03 | 030000, 030001, 030002 |
Canned Soda | 04 | 040000, 040001, 040002 |
Candy | 10 | 100000, 100001, 100002 |
If you want an SKU number to convey more information about each item, a different system with more identifiers is needed, as in the example below.
Versatile 2-identifier System
Here’s an eight-digit SKU number system that uses two identifiers to represent a top-level category plus an item type for each product. This type of SKU system helps staff recognize key details of any product at a glance. For that reason, it’s a very handy SKU number system for stores, like fashion boutiques, that have item types—like styles or materials—that cross multiple categories.
SKU Number Example for a Fashion Boutique
Category | Code | Item Type | Code | SKU Numbers: Category+Item Type+Sequential # |
|---|---|---|---|---|
Jeans | 01 | Straight-leg | 11 | 01110000, 01110001, 01110002 |
Jeans | 01 | Flare-leg | 12 | 01120000, 01120001, 01120002 |
Blouses | 02 | Sleeveless | 21 | 02210000, 02210001, 02210002 |
Blouses | 02 | Long-sleeve | 22 | 02220000, 02220001, 02220002 |
Dress Pants | 09 | Flare-leg | 12 | 09120000, 09120001, 09120002 |
In this sample, the first two numbers represent the top-level category for this fashion boutique for items like Jeans, Blouses, and Dress Pants. Then, the next two numbers identify different item types like straight-leg, flare-leg, sleeveless, short-sleeve, and so on. The last four numbers are sequential.
Note: With this system, your item types don’t have to be category-specific. For example:
01120000 = Jeans (01), Flare-leg (12)
09120000 = Dress Pants (09), Flare-leg (12)
Here, flare-leg (12) applies to more than one category since it’s a style common in both jeans and dress pants.
Supplier Identifier
Sometimes it’s helpful to have supplier information tied to your SKU number. This is an especially helpful SKU number system in fulfillment warehouses where goods are stocked and tracked by the supplier rather than merchandised in a mix as in a retail store. If you display or store products based on brands or suppliers, this two-identifier, 10-digit SKU number system can cover all the bases.
SKU Number Example for an Ecommerce Business
Supplier | Code | Item Type | Code | SKU Numbers: Supplier+Item Type+Sequential # |
|---|---|---|---|---|
Bentley Plastics | BP | Tumbler-Lg | 063 | BP063-0001, BP063-0002, BP063-0003 |
US Acrylic | UA | Wine Glass | 064 | UA064-0001, UA064-0002, UA064-0003 |
Prodyne | PD | Wine Glass | 064 | PD064-0001, PD064-0002, PD064-0003 |
Merritt USA | MT | Dinner Plate | 166 | MT166-0001, MT166-0002, MT166-0003 |
Tervis Tumbler | TT | Tumbler-Lg | 063 | TT063-0001, TT063-0002, TT063-0003 |
In this type of alphanumeric SKU number system, staff can determine the supplier and item type of any product SKU number they encounter easily. Plus, being alphanumeric, it’s easy for new and seasonal staff to understand and remember. This system also uses item types that cross multiple suppliers, for example:
BP063-0001 = Bentley Plastics (BP), Large Tumbler (063)
TT063-0001 = Tervis Tumbler (TT), Large Tumbler (063)
Benefits of SKU Numbers
SKU numbers offer significant advantages in inventory management and sales analysis, making them essential for efficient retail operations and retail inventory best practices. Here’s how they benefit your business:
- Improved inventory tracking: SKUs allow for precise tracking of stock levels, making it easier to identify when to reorder products and prevent stockouts or overstocking.
- Streamlined sales reporting: Unique SKU codes allow you to analyze sales data by product type, department, or store location easily, helping you identify top-selling items and underperforming stock.
- Enhanced customer service: SKUs help sales staff locate products quickly, ensuring a smoother and more efficient customer experience in-store or when handling online orders.
- Optimized restocking and order management: SKUs make it simple to match incoming shipments with existing inventory, speeding up restocking and minimizing errors in order processing.
- Informed marketing and merchandising decisions: SKU data provides insights into popular product variations, like colors or sizes, allowing you to tailor marketing efforts and adjust in-store displays to better meet customer demand.
SKU Number Frequently Asked Questions (FAQs)
Click through the questions below to get answers to some of your most frequently asked SKU number questions.
SKU stands for stock-keeping unit, which is an alphanumeric code that serves as a unique product identifier. Retailers create their own SKUs to help them track inventory.
An SKU number is used for inventory tracking, sales analysis, customer checkout, and product identification.
To create an SKU code for your product, choose a format that reflects key product details, such as category, brand, size, or color. You can manually generate SKUs using this structure or use inventory management software or a point-of-sale (POS) system to automate the process. Many POS systems offer SKU generators that ensure unique and organized codes for easy tracking.
SKU numbers are important because they can help you keep your store and excess inventory organized, improve customer service and checkout flow, and streamline your inventory management processes.
A Universal Product Code (UPC) is a standardized 12-digit product code that manufacturers and those making original products acquire from the Global Standard Organization (GS1) and use to identify their products. A stock-keeping unit (SKU), on the other hand, is a unique, custom product code that retailers assign to their products based on their needs and organizational methods.
Unlike UPC codes, SKU numbers are not universal. Retailers create their own SKU numbers for products according to their own naming systems and conventions.
You can find the SKU number on product listings in your inventory management or POS system or on the product’s barcode label if it’s been printed. If you’re purchasing the product, the SKU may also be listed on the retailer’s website or product receipt.
Bottom Line
SKU numbers help you organize, track, find, and identify inventory using a system that’s meaningful to you and your staff. Because SKU numbers can include both letters and numbers, there’s a tremendous amount of flexibility, making it easy to create a system that’s totally tailored to your business needs.
Done right, your SKU numbers help you merchandise your sales floor, better serve customers, and maximize sales. Essentially, having a thoughtful and well-maintained inventory management system can make your business more efficient and profitable.
Pairing a meaningful SKU number system with a POS like Square for Retail gives you every tool you need to maintain your inventory and sales floor efficiently. Square provides streamlined, user-friendly inventory management and reporting tools so retailers can put SKU numbers and their data to work.
