What Is a SKU and How Should You Use It?

What Is a SKU and How Should You Use It?
A stock keeping unit (SKU) is a unique number assigned by a retailer to items in their inventory. Read more on SKUs and how you can get inventory management for free.
by Square Oct 16, 2020 — 3 min read
What Is a SKU and How Should You Use It?

What does SKU stand for?

In the world of retail-related acronyms, SKU is likely one that you’ve heard a million times but you might not know the meaning.

SKU stands for “stock keeping unit” and — as the name suggests — it is a number (usually eight alphanumeric digits) that retailers assign to products to keep track of stock internally.

sku vs. UPC code

SKUs vs. UPC codes

You may have heard SKU and UPC used interchangeably. They are similar but serve different purposes for retailers.

A UPC, or universal product code, is a 12-digit numeric code that is attached to products wherever they are sold, for external use. (It’s often referred to as a “UPC code,” awkwardly translating to “universal product code code.”)

So, a product has the same UPC no matter where it’s sold, but different stores assign it different SKUs. SKUs are typically unique to a single retailer.

Then again, there are a lot of retailers that use UPCs as SKUs. But smaller shops (especially those that make their own products) may find it beneficial to create their own SKU system.

SKU management

If you’re going to use SKUs, their management is incredibly important. SKU management allows you to analyse the cost of carrying each product so you can be sure that every piece of inventory meets the financial objectives of the business.

When done well, product SKU management allows you to optimise your inventory levels and purchasing (and increase revenue). If done poorly, you have high inventory holding costs and less available capital.

You can manage your SKU library manually or you can take an automated approach.

Manual SKU management

If you go the manual route, you need to calculate two metrics — SKU ratio and sales ratio — and then compare them.

 

Automated SKU management

That whole process may seem a little tedious, but don’t worry, you can automate SKU management. Automating your SKU analysis reduces costs and improves the accuracy of your data.

To automate the process, you want to leverage POS systems with integrated inventory management and other tools like barcoding. Using software to manage your inventory allows you to electronically track items in real time and automatically update inventory. In addition, built-in analytics help you create more efficient purchasing processes and more effective sales and marketing strategies.

Managing SKU numbers with Square for Retail

You can use Square for Retail to print labels for all your products that include a SKU.

If you don’t yet have one, devise an easily decipherable code for generating SKUs, referencing information like the type of item, size, color, maker, etc. If you’re not interested in creating your own system, try a SKU generator.

In your Square for Retail point of sale, start logging your products in your Square Dashboard. To enter a new product, click Create Item in the top-right corner. Next, fill in the item information (including SKU number), upload a photo, and add the variation information, like price, size, and number of items in stock.

After you’ve added everything to your Dashboard, you can organise your inventory by creating various categories, like jewellery, shoes, and clothing. Then, add products to categories by clicking Assign Item and checking the appropriate boxes. You can also use your Dashboard to delete items. If you have multiple locations, keep in mind that employees only have the ability to edit variation prices at the locations where they have access.

Once you’ve added items, go to the Inventory Management section of your Dashboard. Then click Stock > Print Labels.

Don’t need these advanced inventory features? Square Point of Sale, our free POS app, includes free inventory management software built for smaller businesses.

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