SKU Numbers: What They Are & How To Set Them Up

A SKU (Stock Keeping Unit) is an alphanumeric code, usually 6 to 8 characters long, that identifies a product and helps you track inventory. You can create SKU numbers manually or in your inventory management or point of sale (POS) software. SKU numbers print on your product label along with the product’s UPC Code and other product information.

In this article we’ll provide information on the importance of SKUs, as well as how to create and manage your own using Lightspeed POS. Lightspeed is our recommended POS for retailers with large inventories, partially due to its SKU capabilities and built-in inventory management system. Click here to start a free trial and follow along below.

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Why SKU Numbers are Important for Store Owners

SKUs help you track products in an inventory management system, but that’s not all. A well thought out SKU system helps you better plan and manage 3 primary areas of your business:

Store Appearance & Shopping Experience

SKU numbers help you map and organize your store so shoppers and staff alike can easily find needed products. A SKU number system lets you categorize products a number of ways. You can track products by item type, department, collection, or vendor, so you can organize and easily find products on your sales floor and in storage areas. This helps you improve merchandising and present an inviting, ordered experience to shoppers which leads to more sales.

Without SKU numbers, you can lose track of where products are in your space and end up with confused staff, frustrated shoppers and worst of all, lost sales.

Improved Customer Checkout & Service

A streamlined SKU system makes customer service and checkout tasks smooth and error-free. Tracking products using SKU numbers in a point-of-sale system, like Lightspeed POS, ensures that your inventory and pricing is always spot-on. So when customers check out, purchases ring up with the correct pricing and your quantity-on-hand is automatically reduced for sold items. You can even turn your SKU numbers into scannable barcode labels for faster checkout.

Plus, when a customer can’t find an item, a quick SKU number lookup in your POS reports stock status and helps staff quickly locate it on the sales floor and close the sale.

Inventory Management & Profits

Inventory management errors are the third major cause of profit losses in most retail businesses, just behind shoplifting and employee theft. These losses are caused by any number of administration and data entry errors which, over time, can add up and seriously impact your bottom line. Tracking inventory with a SKU number system prevents many of these lost profit situations.

For example, if you don’t organize your storeroom stock using SKU numbers, it’s easy to lose track of overstock. If you can’t locate your overstock to refill shelves, then you’ll reorder more stock than you actually need. Or, if you don’t properly check-in inventory shipments, you won’t catch supplier mistakes, like shorted shipments. When this happens, you pay for stock that you didn’t receive plus end up with inventory shortages down the line. Both situations equal money lost.

Using SKU numbers together with a POS like Lightspeed minimizes your inventory management errors and costly losses. Most support barcode labels and scanners, too, for faster inventory counts.

A 3-Step Framework for Creating & Managing SKU Numbers

Now that you understand why SKU numbers are important, let’s look at a basic 3-step framework for creating them. Whether you’re using a manual system or POS to track inventory, the framework is the same. And yes, you can mix numbers and letters in your SKU numbers system. Use whatever logic works for your organization.

Source: ASAP Systems – an example of a custom SKU used together with a UPC barcode.

1. Start SKU numbers with a top-level identifier

The first 2-3 digits/characters of each SKU number should represent a top-level identifier. This can be a department, store category, or even a supplier. With this, a quick glance at a SKU number identifies the top-level merchandising group and location of any product in your store. You can even use this section to identify store locations if you run more than one store.

2. Use the middle number series to 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 make sense when organizing the products you sell.

3. Finish SKU numbers with a sequential number

Using sequential numbering (ie: 001, 002, 003) for the final series of a 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 a SKU number to a supplier product number can be helpful too. Again, use whatever makes logical sense for the products you sell.

Pro Tip: How Long Should SKU numbers be?

“This depends what the SKU is being used for. There are different types of product SKUs. Universal product code (UPC), custom store codes, and manufacturer SKUs are some common examples.
In North America product codes are generally a 12 to 18 digit numeric code, matching the standard UPC model. This model is great if the code will be printed on a barcode and scanned with a scanner, but would not be the best option if the code needs to be manually typed or written out by hand.

Custom SKUs are typically a shorter model and are sometimes alphanumeric (containing letters and numbers). These are great if the code needs to be manually typed or input without a scanner, since they are generally easier to read and remember. It is not uncommon for a point of sale or inventory management system to auto-generate a SKU number or similar type code for a product.“
— Caro Jang, Sales Engineer, Lightspeed POS

Now let’s look at some examples of our SKU number framework in action.

SKU Number Example 1: Simple Top-level Identifier

Here’s a simple numeric SKU number system that uses just 1 top-level identifier in a 6-digit SKU.

SKU Number Example for a Convenience Store

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

In the sample above, notice that the first 2 numbers represent each category of goods in the convenience store. The next 4 numbers are a sequential numbering system. As long as you don’t have more than 99 departments, or over 9999 products in a given department, this system works and is simple to enter and maintain in any POS system.

But, if you want a SKU number to convey more information about each item, a different system with more identifiers is needed.

SKU Number Example 2: Versatile 2-Identifier System

Here’s an 8-digit SKU number system that uses 2 identifiers to represent a top-level category plus an item type for each product.

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 2 numbers represent the top-level category for this fashion boutique: Jeans, Blouses, Dress Pants, etc. Then, the next 2 numbers identify different item types such as Straight-leg; Flare-leg, Sleeveless, Short-sleeve, etc. The last 4 numbers are simply sequential numbers.

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. This is a very handy SKU number system for stores that have item types, like styles or material, that cross multiple categories. This type of SKU system helps staff recognize key details of any product at a glance.

SKU Number Example 3: Include a Supplier Identifier

Sometimes it’s helpful to have supplier information tied to your SKU number. If you display or store products based on brands or suppliers, this 2-identifier, 10-digit SKU number system can cover all of the bases. In fact, it’s how I managed my ecommerce inventory for 17-plus years.

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 easily determine the supplier and item type of any product SKU number they encounter. Plus, being alphanumeric, it’s easy for new and seasonal staff to understand and remember. As in Example #2, this system 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)

This is an especially helpful SKU number system in fulfillment warehouses where goods are stocked and tracked by supplier rather than merchandised in a mix, as in a retail store.

Other SKU Number Identifiers to Consider

Above we explored how common top-level identifiers such as category and supplier can pair with item type codes to create versatile SKU number systems. But, those are just a few of the many identifiers you can use. Here are some other identifiers that may be useful for your operation.

Store or Location Identifier

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. 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. This is helpful for tracking sales by location or outlet, and for tracking inventory quantities per store.

Department Identifier

Departments are broad top-level identifiers that help you track merchandising and store location. 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. This is helpful in spotting 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.

Variation Identifier

If you sell products that come in different colors or sizes, a Variation Identifier can be a great help to both your customers and staff on the sales floor. 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)

Sub-Category Identifier

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 Sub-category Identifier to your SKU. For example, if you have a Candy category, you can assign a numerical code for sub-categories such as Candy Bars, Lollipops, Boxed Chocolates, etc.

Using the Data – Put SKU Numbers to Work for You

However you design your SKU number system, a POS system like Lightspeed gives you many tracking options. As shown below, you have a large field to assign a Custom SKU in the Add Product screen, plus additional fields to help organize and track your product data however you wish.

Once products are entered into your Lightspeed POS, you can use different segments of your SKU numbers to pull an array of sales, inventory, and reorder reports.

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For example:

Use the supplier code to pull inventory counts for just one supplier for an inventory spot-check
Pull a sales report based on one item type code, such as Flare-leg, to see all sales for Flare-leg products over a period of time
Pull a restock order report for one department within one store

Along with SKU-based data, systems with advanced inventory management like Lightspeed POS let you further organize products using built-in Category, Manufacturer, and Custom tags. Tracking stock and sales data using both SKU numbers and built-in tags give you the reporting you need to make informed decisions every step of the way.

Setting up a SKU number system is clearly worthwhile if you want to track products and sales data in an organized fashion. But if you’re asking yourself if SKUs are worth the trouble when your products already arrive with scannable barcodes, here’s the answer before we move on.

SKU Numbers vs. UPC Codes

UPC codes are 12-digit codes assigned by the Global Standard Organization, known as GS-1. GS-1 works with manufacturers and retailers to assign and oversee the global use of UPC codes. UPC codes are placed on products by your manufacturer. SKU numbers, by contrast, are an ordered stock numbering system designed to fit your unique business needs.

You certainly can use your manufacturer’s UPC codes in lieu of SKU numbers to track products in your system. But you’ll miss out on the many benefits of having a SKU number system tailored to your specific operation. SKU numbers that you create feature identifiers that are meaningful to you and your staff. With them, you can sort, report, and view product data and stats based on your needs. Supplier-generated UPC codes don’t contain unique or consistent identifiers that mean anything to your operation.

UPC codes are helpful in other ways, though. You can use them to maintain current MSRP pricing and even check out the local or online competition. You can also use UPC codes to research products online or to use your cell phone to scan UPC codes and scout for new products when shopping.

Set up SKU Numbers in a POS or Inventory Management System

The framework and examples we covered above should give you a head-start on creating a SKU number system for your business. You can create your SKUs and track inventory by hand in notebooks or by using spreadsheets, but it’s far easier and more efficient to use a retail POS with inventory tracking.

Our recommended POS for small and growing businesses is Lightspeed. It’s very affordable, starting at just $99/month for one station, and includes advanced inventory management features and comprehensive reports. You can add more features as you grow, too.

Here’s another look at Lightspeed’s intuitive product entry screen.

As shown above, you can enter as much product data as you wish to track. But you don’t need to spend too much time entering data if you don’t need to track every detail. Most small stores generally need to enter just the following to get started:

Item Name
Custom SKU
Manufacturer UPC and/or SKU
Default Cost
Default Price
MSRP Price
Vendor
Reorder Point
Low/desired Inventory Level

The Bottom Line

SKU numbers help you organize, track, find, and identify inventory using a system that’s meaningful to you and your staff. Done right, your SKU numbers help you merchandise your sales floor, better serve customers, and maximize sales. Pairing a meaningful SKU number system with a feature-rich POS like Lightspeed gives you every tool you need to maintain your inventory and sales floor efficiently.