This article is part of a larger series on Retail Management.
A stock-keeping unit (SKU) is an alphanumeric code that identifies a product and helps you track inventory for your retail business. The information your SKU includes is completely up to you—distinguishing it from a universal product code (UPC), a standardized 12-digit code manufacturers use to identify products. Depending on the type of inventory, your SKU number can include identifying information for everything—from department to style, gender, size, and color. You can create SKU numbers manually or automate the process with an inventory management or point-of-sale (POS) system.
At my store, we used an SKU system in which the first two letters of each SKU code corresponded to the type of product it was attached to, e.g., all of our shirts had SKUs starting with an SH, all of our pants had PA, jewelry JE, and so forth. The remaining digits corresponded to store location, size, and other relevant product information. With this custom identification system, it was easy to keep track of our products and label our goods.
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 for free. 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.
Top-level Identifiers to Consider
If you run more than one store or sell some items solely online or via fairs or markets, you can also use a Store Identifier to group items by sales outlet. This helps track sales by location or outlet and makes it easier to track inventory quantities per store. Even if you don’t sell in multiple locations yet, if you think that’s in your future, leave a placeholder for this identifier in your SKU framework so that you won’t have to reinvent your system later.
Departments are broad top-level identifiers that help you track merchandising and location within your store. You can use a Department Identifier to quickly tell where an item will be located or displayed on the sales floor. If you use a department identifier in your SKU number, you can also segment sales reports by department to spot troubled areas of your store. If you have a department with overall lackluster sales, you might need to move that section, adjust your store’s traffic flow, or boost your featured displays in that area.
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.
Unique Identifiers to Consider
If you sell on multiple sales channels—like in-store, an online website, and on social media—you might consider adding an identifier to differentiate each channel. This helps you understand and compare your ecommerce and brick-and-mortar efforts. For example, if you sell on Amazon and your own branded store on Shopify, you might use AMZ or SHO as identifiers. You can take this approach even if you sell on just one digital channel—the option for expansion will always be available.
Learn how to start an ecommerce store with our step-by-step guide: How to Start an Online Store in 8 Steps: A Beginner’s Guide.
If you sell products in different colors or sizes, a variation identifier can greatly help both your customers and sales floor staff. Plus, it lets you easily track which colors and/or sizes are most popular. Here’s a look at how easy it is to add a variation identifier to our sample SKUs:
01120001M = Jeans (01), Flare-leg (12), Medium (M)
09120001L = Dress Pants (09), Flare-leg (12), Large (L)
For small retailers, this level can be a bit fussy, But if you wish to track inventory and sales at a very granular level, you can add a Subcategory Identifier to your SKU. For example, if you have a Candy category, you can assign a numerical code for subcategories such as 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.
Read our Square for Retail review to learn more about its features before signing up for your free account.
Step 5: Create & Print Barcodes Labels
Use our barcode generator below to start printing your barcodes straight from your computer.
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.
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.
Learn more about retail inventory best practices.
- Inventory tracking
- Sales analysis
- Customer checkout
- Product identification
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 method.
Unlike UPC codes, SKU numbers are not universal. Retailers create their own SKU numbers for products according to their own naming systems and conventions.
Here is an overview of the difference between a UPC and an SKU number:
Created by retailers to fit unique business needs
GS-1 in conjunction with manufacturers
10 codes for $250
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.