What is a SKU?

Whether you're launching an online store, selling a variety of products, offering digital downloads, or selling services, staying organized with your offerings is crucial for success. Stock keeping units (SKUs) are the unsung heroes of inventory management. These unique identifiers help you track items, fulfill orders accurately, and make smarter business decisions.

Think of SKUs as your business' internal organization system. While customers focus on product names, colors, and sizes, you and your team use these unique identifiers to manage everything behind the curtain—from restocking popular items to ensuring the right version of a digital download gets delivered. Let's explore how SKUs work and how to create a system that grows with your business.

Understanding SKUs vs. other product codes

Think of a SKU as your product's fingerprint—it's a distinct code that you assign to each item or offering in your inventory, making it easier to track and manage. SKUs work for any type of product you sell, whether it's physical merchandise, digital downloads, or services. For example:

• A physical product like a t-shirt might use "TSH-RED-M"

• A digital download like an ebook could use "EBK-MRKT-PDF"

• A service package like a photography session might use "PHT-1HR-STD"

Unlike UPC codes, universal product codes—those familiar barcodes you see on products at any store—SKUs are unique to your business. You create them to match your specific management needs.

Here's a quick comparison:

• SKUs: Your internal system for tracking products and variants

• UPC codes: Universal codes that remain the same across all retailers

• Barcodes: The scannable version of either SKUs or UPC codes

This flexibility means you can design SKUs that make sense for your business operations and help you work more efficiently.

Benefits of using SKUs

Implementing SKUs brings practical advantages that can improve both your operations and customer experience.

Streamlined inventory management

Know exactly what's available and when to adjust your offerings. For physical products, SKUs help prevent stockouts, especially if you sell in more than one place. For digital products and services, they help track different versions or package types. For instance, a clothing boutique can quickly check if a popular dress style is running low in specific sizes, while a online course creator can track which course versions need updating.

Faster order fulfillment

When every offering has a unique identifier, you can process orders quickly and accurately. A home goods store using SKUs can locate items in seconds rather than searching through similar-looking products. Digital product sellers can instantly deliver the correct version of templates or guides to customers.

Enhanced customer service

When a customer asks about a previous purchase or needs support, SKUs help you identify the exact item instantly. Instead of asking customers to describe what they bought, your team can pull up the details from the SKU. This is particularly valuable for businesses offering multiple service tiers, product variations, or regularly updated items.

Better business insights

Track which offerings sell best and identify trends in your business. A beauty salon using SKUs for different service packages can easily spot which treatments are most popular at different times of the year. An online course creator can track which course formats (video, audio, or written) perform best. This insight can help you develop new products or better plan your budget and resources.

Get more tips for managing your inventory

Creating your SKU system

A good SKU system is logical, consistent, and easy to use. Here's how to build one that works for your business.

• Start with structure: Begin with your main product categories and work down to specific variations. 

• Choose your format: Combine letters and numbers in a way that makes sense for your inventory. Keep consistent patterns within each product type to make your system intuitive.

• Keep it simple: While SKUs can be up to 20 characters long, shorter codes (8-12 characters) are typically easier to work with and remember.

For example, here are a few ways someone could set up SKUs for a clothing boutique, a digital content-focused business, or for their professional services.

Physical products:

• DRS-BLK-S (Dress, Black, Small)

• JKT-DNM-L (Jacket, Denim, Large)

Digital products:

• GDE-SOC-PDF (Guide, Social Media, PDF format)

• TMP-WEB-HTML (Template, Website, HTML format)

• CRS-MKT-BAS (Course, Marketing, Basic Level)

Services:

• CON-HR1-VID (Consultation, 1 Hour, Video)

• CLS-BGN-GRP (Class, Beginner, Group)

• MSG-60M-SWE (Massage, 60 Minutes, Swedish)

Each of these SKUs identifies the product by item type, an identifier (level, topic, or length), and a second identifier (format, size, type). 

How to get started with SKUs

Ready to implement SKUs in your business? Start with these six steps.

1. List your product categories and variations across all types of offerings.

2. Design your SKU format based on your most important product attributes.

3. Create a reference guide for your naming convention.

4. Assign SKUs to your existing inventory.

5. Train your team on the new system, if needed.

6. Set up regular audits and monitoring procedures.

Remember that your SKU system should reflect your specific business needs. While these guidelines provide a foundation, adapt them to create a system that makes sense for what you offer.

Integrating SKUs with your business systems

A well-designed SKU system becomes even more powerful when integrated with your existing business tools. Most modern point-of-sale (POS) systems can scan or input SKUs to automatically track sales and update inventory levels in real time. 

By connecting your SKUs to your ecommerce platform, you can seamlessly organize your online store and keep inventory synchronized across all your sales channels. For example, if you’re selling at an in-person event, someone can be buying from you via social media or your online shop at the same time, and a good POS ensures you always have accurate stock levels. Customers never try to buy something sold out and you know exactly what you have on hand.

Your analytics tools also benefit from consistent SKU usage, helping you identify seasonal trends, track bestsellers, and flag items that might need promotional attention.

Best practices for SKU management

Setting up SKUs can save you time and help you uncover business insights. But it helps to follow some best practices, like good documentation, auditing, and clarity, to help things run smoothly.

• Create clear documentation. Create a comprehensive guide that explains your SKU format and abbreviations, making it easy to maintain consistency as your business grows. Include clear examples of how to create SKUs for new products and outline procedures for handling special cases. This documentation becomes invaluable if you bring on additional help.

• Review your SKUs regularly. Schedule monthly reviews to ensure your SKU records match your actual offerings. For physical products, this means checking inventory levels, while digital products and services require verification that SKUs align with current versions and packages. These consistent checks help you catch discrepancies before they can impact your business.

• Monitor performance of each SKU. Use your SKU data to track product performance and identify trends, then apply these insights to guide your product development, service packages, and marketing strategies. Set up regular reporting to keep tabs on bestselling items and identify underperforming offerings that might need attention.

• Leave space to grow. Design your SKU system with room for new product categories or service types. For instance, if you're starting with apparel but might add accessories later, ensure your naming convention can accommodate new categories without requiring a complete system overhaul.

Avoiding common SKU issues

Every business faces inventory challenges, but a well-managed SKU system helps you address them efficiently. Here are a few things to keep an eye on when auditing and training others on your SKU system. 

• Duplicates: A single duplicate can create confusion and lead to fulfillment errors. When upgrading your business systems, ensure your SKU format remains compatible with new software, and always test integrations thoroughly before implementing them.

• Consistency: Keep your character usage clear and consistent—avoid mixing zeros and O's, which can look similar and lead to confusion. Always start your SKUs with letters rather than numbers to prevent spreadsheet formatting issues that could misinterpret your codes as numerical values.

• Clarity: Create distinctly different codes for similar items—rather than using "BLK" and "BLU" for black and blue items, opt for more distinctive abbreviations to prevent misreading. When you discontinue any offering, resist the temptation to reuse its SKU code. Even if it seems efficient, retiring SKUs preserves your historical data and prevents future confusion.

• Adoption: As your business grows, create quick-reference guides for any staff and establish clear procedures for creating new SKUs. Regular training sessions ensure everyone follows the same conventions, reducing errors and maintaining system integrity.

By implementing a clear, consistent SKU system now, you'll build a stronger foundation for your business' growth and set yourself up for more efficient operations as your offerings expand. Squarespace offers tools to help you set custom SKUs and manage inventory with POS integrations.