The meaning of product SKUs and how to create them so that your business is more organized

Ever heard of the term SKU? In the business world, especially in product sales, understanding SKU is essential.

SKU stands for Stock Keeping Unit. It refers to a unique code used to identify each type of product sale in your business. For example, if you run a culinary business, SKU can help you track inventory from raw ingredients to menu items!

In short, using an organized SKU system makes business operations more structured and efficient. Now, let’s dive deeper into why SKU is important in products and how to create one!

Why are SKUs Important for Business?

A Stock Keeping Unit (SKU) is a unique code assigned to each item, whether purchased or sold in a business. Essentially, an SKU acts like a unique name for every product.

Typically, SKUs are created using a series of numbers attached to a product, making them its unique identifier. That’s why SKUs are sometimes also referred to as part numbers, product numbers, or product identifiers.

These unique numbers help distinguish one item from another. In many cases, SKUs are also printed in the form of barcodes for easier tracking.

Benefits of Using SKUs in Business

After understanding what a Stock Keeping Unit (SKU) is, it's also important to know its functions.

The main purpose of an SKU is to prevent duplicate product numbers. This way, when a customer requests a specific item, the business owner can quickly and easily find the exact product. Below are other key functions of SKUs:

1. Identifying Products

The primary function of an SKU is to identify a product. Since each item sold by a company needs to have a unique SKU, this system helps businesses differentiate between similar-looking products with nearly identical features.

2. Managing Inventory

SKUs make it easier to efficiently manage stock. With a unique SKU for each product, businesses can track how many items are still available, how many have been sold, and how many need to be restocked.

3. Monitoring and Tracking Sales

With SKUs, companies can analyze sales trends in detail. They can identify which products sell the most, which ones are rarely purchased, and adjust sales strategies accordingly.

Additionally, SKUs help minimize product defects, lost inventory, or unsellable items.

4. Handling Orders

SKUs greatly assist in processing customer orders. When a customer places an order, the system can instantly check the requested item based on its SKU, verify stock levels, and coordinate shipping.

5. Increasing Operational Efficiency

SKUs simplify the tracking of incoming and outgoing stock, making business operations more organized and efficient.

6. Reducing Errors

Without SKUs, the risk of mistakes in inventory management increases. SKUs provide a clear product identification system, reducing confusion and errors.

7. Assisting Sales Analysis

By using SKUs, businesses can analyze which products are bestsellers and which ones are less popular among customers.

Read Also: F&B Business: Definition, Types and Tips for Starting in 2025

How to Create an Effective Product SKU

Source: Freepik

Now that you know the benefits of SKUs, you might be interested in creating your own. The good news is that creating an SKU isn’t as complicated as it seems! Follow these steps to generate effective SKUs for your products:

1. Define Product Categories

The first and most crucial step in creating an SKU is categorizing your products. For example, if you run a food and beverage business, clear categorization will help your operations team manage stock efficiently.

For instance:

• For snack products, you can use the code "SNK" (snack).
• For beverages, you can use "BEV".

2. Use Unique Codes

Each product must have a unique SKU code to avoid confusion in inventory tracking. Avoid using similar codes for different products, as this can lead to errors in stock management.

For example:

• If you sell milk coffee and black coffee, create distinct codes like:
  • "COF-MILK" for milk coffee
  • "COF-BLK" for black coffee

3. Include Important Information

To make your SKU more informative, add essential details such as size or product variation. This helps warehouse and sales teams quickly identify products.

For example:

• If you sell coffee in three different sizes, use codes like:
• • "COF-SML" for small size
  • "COF-MED" for medium size
  • "COF-LRG" for large size

4. Maintain a Consistent Format

Consistency in SKU formatting is essential. If the SKU format is messy or inconsistent, the operations team may struggle to locate products in the system.

Set a standard format for all products. For instance, always use the "category-variant-size" format.

• Example: If you sell green tea in medium size, the SKU can be:
  • "TEA-GRN-MED"

5. Keep It Simple but Informative

An SKU should be simple yet informative. Avoid making it too long, as this can complicate data entry and retrieval.

For example, a clear and concise SKU for medium-sized chocolate cake could be:

• "CAKE-CHO-MED"

With structured and easy-to-read SKU codes, inventory management becomes faster and more efficient.