What Exactly IS a SKU Number? (Plus UPCs & EANs)
So, you’ve figured out what products you want to sell. You’ve set up the website for your online store, found an excellent supplier (or three), and you’re all ready to go.
Except: As the old adage says, “Start as you mean to go on.”
In other words, get organized now so that you stay organized as you begin to sell. If you’ve got inventory, you need to have an organized inventory tracking system.
Think about your favorite brick and mortar retail store. When you walk in, they have aisles of products, usually sorted into categories. Pick up any product and you should be able to find some information on it (or on the shelf where the product is located), including the price.
Generally, you’ll also see some kind of barcode or number, or possibly two sets of numbers. These numbers are a critical part of the shopping experience for both the store owner and the customer.
For the customer, they provide a seamless, simple shopping experience. For the store owner, they are the foundation of order and good business practices.
If you’re an ecommerce store owner, you don’t want to run a business without some kind of inventory tracking system. Without a good system, it’s chaos (or as the wise Dr. Venkman once said: “Dogs and cats, living together, mass hysteria.”)
There is a variety of inventory management software available; some you pay for, some free apps, or you could build your own system with a spreadsheet and a lot of data entry. What’s best for your business is going to depend on a few things: how many different items you sell, how much volume of product you move, and if or where your products are stored while waiting to be purchased.
Regardless, you’re going to need to assign some kind of designator to each product so that you can track it in your system. You’re probably familiar with these acronyms: SKU, UPC, EAN. Let’s talk about what they actually are and how you should use them to build an efficient inventory system, plus go over some advice on how to create good SKUs.
What Is a SKU?
For you, master or mistress business owner, the SKU, or Stock Keeping Unit, is how you track anything you sell. This string of alphanumeric digits is something you create to manage your store’s inventory of products in real-time.
You can use SKUs to track non-physical products, too. A training seminar or an hour of repair time, for example, are products your business might offer. If it’s something on which you’ve put a price (even though you’re not sourcing it from a warehouse), you should track it. Knowing how many training courses you sell or how many of your items need to be repaired is good data to have as well.
If you only sell one thing, you can get away with not having a SKU. But when you start to add products to your store, SKUs do more than just figure out the number of items you have.
First, a SKU number helps you maintain order. Your tracking system should be more than simply knowing exact stock level of a specific product. It should also have the ability to know how fast a product is moving, the exact reorder points so that you never experience a stockout, and where all of your stock is.
The SKU number makes all those things possible. It puts an identifier on your product which goes into your tracking system, and you can then use the resulting data about the movement of your product.
For online businesses especially, you might be sourcing from multiple locations and have stock warehoused in different places. Being able to track everything through different SKU numbers gives you data, and that data is the key to running your business smoothly.
Second, a SKU number helps you provide a good customer experience. The better control you have over your inventory levels, the better the experience is for your customer.
Imagine walking into a clothing store. You know exactly what you want: a white, long-sleeved shirt, size medium. You ask a clerk to point you in the direction of that product, but all they do is shrug and say, “All the shirts are over there. I’m sure you’ll find it somewhere.”
A SKU doesn’t just tell you how many shirts you have or how many white shirts you have. You can get super specific: size, color, style, it doesn’t matter because each variant will have a unique SKU.
That way, when a customer searches for an item — or calls your customer service line — they can find the right item quickly. If you are maintaining control over your inventory, their search will return exactly what you have in stock, making their experience better.
It’s all technological magic that happens behind the scenes for the customer, but for you, a SKU is a part of making visible all the ways in which your products move.
A good SKU will also help you fulfill their order more smoothly. For example, you might have the same product at two warehouses. Good inventory tracking means you can pull the product from the warehouse closest to the customer, meaning a shorter delivery time and possibly a lower delivery cost.
A happy customer — one that has a good experience shopping at your store — is a customer that will return and will recommend you to others.
Third, a SKU number helps keep you from losing money; if you don’t know what you have in your inventory, you can’t sell it. Plus, knowing exactly what you have on hand means you don’t order extra products that you don’t need.
For online retail businesses, the more products you sell and the more physical locations you’re dealing with for warehousing, the more stuff you have to track. If Warehouse A has a pallet of widgets sitting in some back, dusty corner, and you don’t know they’re there because they’re not in your inventory tracking system, you may think you’ve run out of that particular widget.
You might miss a sale because a customer thinks you don’t have that widget on hand right then. Then you order another pallet of the same widget, spending money that you don’t need to spend because you already have that item in stock.
Lack of information can kill your online business. Especially if you’re dealing with inventory that goes from supplier to warehouse to customer without you ever seeing it, you have to have the right data at your fingertips to manage your business well.
SKUs are the foundation of a good inventory tracking system, so how do you create good ones?
How to Create Good SKUs
Because SKUs are created internally to your business, you have a lot of flexibility in making them work for you and the inventory tracking system you choose.
SKUs basically function as shorthand for a product description in your tracking system. Here are a few tips for creating good SKUs.
- SKUs are internal. Yes, they’re a description of the product, but it’s a description that should make sense to you in terms of your inventory management, not a description that needs to make sense to a customer.
- Mix letters in with the numbers. You might use the first two or three letters of the product, along with a number that indicates the specific style or size of the product.
- Make the characters of the SKU mean something, but don’t get cute. The numbers and letters should indicate things like: supplier, department, category, warehouse location, and unique features. They should not “mean” something. For example, the only time your SKU should include “1701” is if the product you’re selling is a Star Trek model of the USS Enterprise.
- Ensure that your chosen SKU works with your tracking system.
- Don’t start your number with zero, and don’t use characters that might confuse software — especially if you’re doing something like exporting data into Excel.
- Find the Goldilocks SKU. It should be short enough to use easily but long enough to include all the information you need.
What Are UPCs and EANs?
When you are deciding on what products to sell, you’ll notice that every product you look at (or every product you work with a manufacturer to create) has its own tracking number. This product number goes by UPC, EAN, or ISBN, depending on where it’s coming from or what the product is.
All these numbers are versions of the same code. We’ll go over the definitions of each, but while it’s important for you to know what these codes are, you should also remember that (unless you are physically manufacturing a brand new product) these codes are not something you can generate or change. You’ll see them on the products you source from your supplier, and you’ll need to know them for placing inventory orders.
A Universal Product Code, or UPC, is used by manufacturers to track inventory. One product model = one UPC. A manufacturer may make a product that is sold by five different retailers — each of those products, regardless of who sells them, will have the same UPC.
UPCs are purchased, not created. You must buy them from a reputable seller; you can’t make them up on your own like you can for a SKU. GS1 is the organization that maintains standards and oversees compliance.
Here’s an example you might be familiar with. On the back of every book sold in a bookstore, there’s a scannable barcode with an International Standard Book Number, or ISBN (which is the book version of a UPC). Take the book to the register and the clerk will scan that barcode, both to ring up your sale and to notify their inventory management system.
The store didn’t create that barcode — it came with the book, part of the printed product. If you walk into any other bookstore in the country (and generally speaking, the world), you’ll find that book has that same exact barcode on the back.
Some bookstores, though, add their own sticker to the book. It might have the price and a SKU number. It may also have the original ISBN. In that store, the clerk scans the store-generated sticker because that’s how they track their inventory.
In a nutshell: All products have UPCs created by the manufacturer and that UPC is the same no matter which store it’s sold in.
EAN is the abbreviation for International Article Number, or European Article Number. It is built around the UPC and includes digits indicating country origin or special product type.
There are a few variations on the EAN. The EAN-13 includes the UPC code plus a country indicator prefix at the beginning of the code. The EAN-8 is used on small products where printing the whole 13-digit code would be problematic. The EAN-2 or EAN-5 are two or five digit barcodes printed to the side of the UPC.
The important thing for you to remember about UPCs and EANs is that unless you are manufacturing a product from scratch, you won’t control these numbers. And you don’t need to — you’ll work with them, but they’re external to your business operation.
Chaos Isn’t the Way to Run (Or Sell) an Online Business
You’re in the online business — well, business — to make money, right? Then you need to be organized.
An inventory tracking system is absolutely necessary to keep order in your e-commerce business, and a SKU is a critical component of a good inventory tracking system.
For you to know exactly what products you have in stock and where they are, you need to create good SKUs for each of your products. Those product SKUs need to make sense for your tracking system and for your business structure.
Because they are internal, SKUs aren’t created for customers to use but they allow you to offer a seamless buying experience to the customer. And, of course, a good customer experience means you’re more likely to create a repeat customer. Small business owners be
And if you decide to sell your online business, a good inventory tracking system with good SKUs makes your business far more attractive to potential buyers. Knowing exactly what inventory you have on hand and having the data to show how your inventory has moved historically is a sign of a solid business.
Buyers are looking for good data on potential investments; you want to show them the entire inventory chain and that you know exactly where your inventory is coming from, staged from, and where it’s going.
If you create good SKUs, you’ll be able to manage your inventory better. That’s good for your customers, good for potential investors, and good for you.
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