SKU Numbers Explained: What Retailers Need to Know (2023)

If you’ve ever visited a retail store and looked at a product’s price tag, you’ve likely come across a stock keeping unit, commonly referred to as a SKU number. A SKU number is an alphanumeric code that helps merchants track inventory and is usually placed on a product’s price tag.

For business owners with physical inventory, SKU numbers are critical for managing inventory and maximising sales. In this guide, we’re going to cover everything you need to know about SKU numbers: what they are, why they’re important, how to generate one plus additional advice and tips.

  • What is a SKU number?
  • How are SKU numbers used?
  • How to create a SKU nomenclature
  • SKU numbers vs. UPC codes
  • Is a SKU the same as a serial number?
  • Best practices on how to use SKUs

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What is a SKU number?

A SKU (stock keeping unit) is a unique alphanumeric code that merchants assign to products to make managing their inventory more efficient. Typically, SKU numbers are between eight and 12 characters long, and each character corresponds to a unique characteristic of the product it represents (like the item’s type, brand, style, or the department it belongs to).

SKUs are also completely unique from one business to another. They’re unique to your business and the information they contain should reflect what your customers or vendors ask most frequently about the merchandise you carry. Different businesses use SKU numbers to track different things, depending on what type of products they sell.

For example, a clothing store might create eight-digit SKU numbers where the first two digits represent the product’s category (t-shirt, sweater, etc), the next two represent the style (regular, oversized or slim fit), the following two represent its color (like BL for blue or BK for black) and the final two digits represent the stock count for that item.

SKU Numbers Explained: What Retailers Need to Know (1)

How are SKU numbers used?

Retailers use SKU numbers to track their inventory and sales, but they can also lend to forecasting future sales and demand, and personalizing which products are recommended to customers in-store and online.

1. Accurately track inventory

Since SKUs are used to track a product’s characteristics, they can also be used to track inventory overall. For instance, a merchant can use SKU numbers to track a product’s availability and overall stock levels across multiple retail stores.

By having up-to-date inventory levels, merchants can order more of a product before running out of stock. In Lightspeed, merchants can take their inventory management one step further and set reorder points. When inventory levels of a product reach its reorder point (the minimum amount you want in stock at all times), that product, and the quantity you need to order, is automatically added to your Reorder List report and ready to be included in your next purchase order.

2. Forecast sales

By accurately tracking inventory levels, SKU numbers also help merchants forecast sales and anticipate what products they need to stock up on to fulfill the demand from customers.

Just don’t make the mistake of exclusively carrying top-selling items. Although it may move slower than other inventory, customers may still want those products and, if you stop selling them altogether, you may lose them as a customer.

An example of just that came in 2008 when Walmart launched Project Impact, where the retailer removed its lowest sellers, kept its highest sellers and stocked up on more expensive items with greater margins. Rather than boost profits, Project Impact resulted in declining sales because customers could no longer count on the retail behemoth to carry certain products.

3. Capitalize on high-profit products

A proper SKU nomenclature can help merchants understand what their business’s most popular (and least popular) items are.

By knowing what type of products are the most popular at any given time of the year, retailers can craft enticing product displays, window displays and web pages and move those products even faster.

4. Recommend relevant products

By tracking products using SKU numbers that represent a product’s characteristics (type, fit, color, etc), merchants are equipping their sales reps with an invaluable tool: information.

If the product a customer wants is out of stock, sales associates can explore alternative products with similar characteristics based on its SKU number—those are items the customer may also like.

This same tactic can be applied online as well. Just think of the last time you shopped online. When you looked at a product, did the page also feature “other products you may like”? This is likely because the featured products and the product you were looking at shared similar characteristics in the merchant’s SKU nomenclature.

SKU Numbers Explained: What Retailers Need to Know (2)

5. Increase customer satisfaction

Since SKU numbers help merchants anticipate which products they need to reorder (and when to reorder them), they’re more likely to have the products a customer wants in stock.

By minimizing the amount of out-of-stock items, merchants can establish themselves as a reliable source that customers can count on to have the products they need.

Want to learn more about driving customer loyalty? Read our guide on how to launch a loyalty program to learn more about driving customer loyalty. In it, we cover the steps you can take to keep customers engaged and incentivized to shop with you online and in-store.

How to define and create a SKU nomenclature

Your SKU number nomenclature refers to the alphanumeric codes you use to define, categorize and identify the information that’s stored in each SKU.

For instance, assuring that each SKU reflects the product’s most important characteristics (color, manufacturer, gender, type, size and model for example). Usually, this information is ordered from most to least important.

So how do you go about creating your SKU nomenclature? Follow these guidelines:

1. Consider how much stock you carry

If you carry only a few items and don’t have plans on expanding your offering, you can opt to exclusively track bare-bones characteristics like gender. If you carry diverse inventory for multiple customer types, though, you’ll likely benefit from tracking additional details:

Product type > Gender > Size

How you purchase and manage inventory will likely benefit from tracking these details.

2. Assure that each SKU is unique

If SKUs are the same between products that share many similar characteristics, accurately tracking inventory becomes challenging. For SKU numbers to fulfill their purpose, each code for each product needs to be unique.

When establishing your SKU nomenclature, here are a few things to remember:

  • Length must be between eight and 12 characters
  • Avoid using the number zero
  • Ensure that each letter and number you use has a meaning

Pro tip: For instance, imbue suppliers, store location, department, variation, item type, size, color, gender or season with a unique two-digit alphanumeric code.

Here’s a guideline for how that may look:

DepartmentCodeItemCodeColorCodeSupplierCodeSKU Number

If the products you offer are more complex and you want each SKU to include more categories, you could consider adding any of the following to your SKU nomenclature:

  • Supplier
  • Store location
  • Department
  • Size
  • Color
  • Item type
  • Category

4. Build your SKU nomenclature in your inventory system

Most retail point of sale systems have integrations available to help merchants create a SKU nomenclature and generate SKU numbers. In Lightspeed, for instance, merchants can use SkuVault.

Alternatively, merchants can use an Excel spreadsheet to define and document their SKU nomenclature, and manually add SKU numbers to products as needed. Be warned, however, this process is open to human error and can contribute to inaccurate inventory tracking.

SKU number vs. UPC code: What’s the difference?

While SKU numbers and UPC codes can both be found on a product’s price tag and certainly look similar, they’re not. Here’s a breakdown of how UPC codes and SKU numbers differ from one another:

SKU (stock keeping unit)

  • Unique to each merchant
  • Between eight and 12 characters
  • Identifies product characteristics
  • Alphanumeric
  • Retailer determines their own SKUs
  • Accompanies a barcode

UPC (universal product code)

  • Universal across all merchants
  • Always 12 characters
  • Identifies the manufacturer and item
  • Numeric
  • UPCs are issued by the Global Standards Organization (GSO)

If you’re a new business that needs barcodes for its merchandise, you should visit the GSO’s starter guide for creating barcodes and UPCs. Next, you can use our free barcode generator to create barcodes fast.

In a nutshell, SKU numbers and UPC codes should never be the same. SKU numbers should identify the product’s characteristics while the UPC code identifies the manufacturer, item and check digit. For more information on the UPC codes, read our article that outlines everything you need to know about UPC codes.

Is SKU the same as a serial number?

No. Serial numbers are unique codes assigned to each specific unit of a product. Serial numbers are often used to identify electronics; if you check your laptop, for example, you’ll notice that it’s given a unique serial number.

Unlike SKUs, which are for stock keeping purposes, serial numbers are typically used to track product warranty and ownership.

Best practices on how to use SKUs

Whether you’re new to SKU management or already have existing systems in place, the following tips will enable you to make better use of SKUs.

Pay attention to stock hierarchy

Come up with a SKU format that makes sense for your retail store. Often, the first 2-3 characters of SKU number should represent the top-level item category, followed by specific item details.

For example, if you’re generating a SKU for a black Nike sweater for women, then your SKU code should start with the top-level category—i.e., “Women” followed by the color, then brand.

Don’t use “0” at the beginning of your SKU numbers

As mentioned earlier, you should avoid using “0” to start your SKU numbers. This is because some stock-keeping programs may interpret the code as having zero quantity, which can wreak havoc on your tracking efforts.

Don’t use letters that look like digits (and vice versa)

To avoid confusion, avoid using alphanumeric characters that are easily misinterpreted. Uppercase “O” for instance, can sometimes appear as zero, while lowercase “L” may appear as the number one.

Skip special characters and punctuation

Some barcode printers may have issues with punctuation and characters such as period and dashes, so it’s best to avoid them. Afterall, you want to ensure that your SKUs are clear and legible when printed out.

Over to you

SKU numbers are a great way of managing inventory in a systematic way. By associating each product with a unique number that reflects its characteristics, merchants can make smarter inventory purchasing decisions, keep inventory organized and make it easier for sales associates to find products that share similar traits.

SKU Numbers Explained: What Retailers Need to Know (3)

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Written by

Sebastien Rankin

Sebastien Rankin is the Content Marketing Lead and Editor at Lightspeed. He produces content that helps retailers and restaurateurs increase sales, navigate operational challenges and improve their customer service. Connect with him on LinkedIn.


SKU Numbers Explained: What Retailers Need to Know? ›

SKU numbers are unique codes that can differ for every product across different stores. They identify a product's distinguishing characteristics, like shape, size, and color, for the retailer to keep track of their inventory. SKUs are purely business-based and help prevent stockouts of a particular product.

Is SKU different for each retailer? ›

Retailers use different SKU numbers for different products based on their features like price, manufacturer, color, style, type, and size. SKUs are specific to a business and can be customized to meet the needs of vendors and customers.

What to consider when creating a SKU? ›

Keep your SKU information short; use unique identifier codes to distinguish between size and colour and other key item details where possible. It's also a good idea to include numbers and letters. But be careful not to add those numbers and letters that look similar to each other in your SKU.

How do you read SKU numbers? ›

For instance, if you have an 8 digit SKU, the first two digits could refer to the item category, the second two digits could refer to sub-category, the third two could refer to item color, and the last two can be the unique identifier.

Do you need a different SKU for each size? ›

Each variant of a product should have different SKUs. In the case of the t-shirt, you'd need a unique SKU code for different colors and sizes. These distinct codes tell your staff, customers, suppliers, and systems that they're talking about the same item.

Can a two SKUs have the same UPC? ›

An SKU is the smallest unit of product or service. Since an SKU is unique to a company, a product would have different SKUs if sold by different companies — but they would have the same UPC.

Is SKU unique for each product? ›

A SKU is a unique code consisting of letters and numbers that identify characteristics about each product, such as manufacturer, brand, style, color, and size. Companies issue their own unique SKU codes specific to the goods and services it sells.

What are the 3 SKU best practices? ›

Here are three SKU best practices for you to consider:
  1. Make your SKUs easy to understand. ...
  2. Arrange words according to importance. ...
  3. Don't use letters that look like numbers, spaces, accents or symbols.
Apr 19, 2018

Can I make up my own SKU? ›

Depending on the type of inventory, your SKU number can include identifying information for everything—from department to style, gender, size, and color. You can create SKU numbers manually or automate the process with an inventory management or point-of-sale (POS) system.

What is the best way to manage SKU? ›

Sku Management Best Practices
  1. Avoid Starting SKUs with Zeros: Some data storing tools disregard leading zeros altogether. ...
  2. Arrange terms in order of importance: In the example of the all-purpose cleaner, we started with the most general information (product type) and moved to more specific information.

Can 2 products have the same barcode? ›

Are barcodes unique to each item? Stores need individual barcodes for each product, not each individual item.

What is SKU format? ›

What is an SKU? SKU stands for Stock Keeping Unit. It's an alphanumeric code between 8-12 characters that distinguishes one product variant from any others in your warehouse. This unique internal code allows retailers to keep track of their products.

What is a Best Buy SKU number? ›

SKU number is a store stocking unit number each store gives for the item model/color/size, etc. All exact same items have the same store SKU number. Serial number is unique to the individual item. Serial number is different for every unit manufactured and given to the unit by the manufacturer, not the store.

What is the ideal number of SKUs? ›

(Most respondents in my interviews indicated that their ideal number is between 50-200). Consumers are also more likely to purchase from smaller assortments when these assortments are curated to include the most attractive options from a larger assortment (Chernev).

How do you create good inventory item numbers? ›

Keep item numbers short, but not so short that they could be mistaken for other numbers (i.e., quantities). 4 to 8 characters will suffice for most organizations. Do not load item numbers with meaning; do not try to use the item number to describe your product.

Does a small business need SKU? ›

To run a business efficiently, it's important to know what you have available to sell. SKUs make it much easier to determine what you have in stock, and therefore to identify when products need to be reordered and avoid stock-outs, especially if there are supply-chain disruptions.

What are the rules for barcodes? ›

UPC-A is strictly numeric; the bars can only represent the digits from 0 to 9. A UPC-A barcode contains 12 digits, along with a quiet (blank) zone on either side, and start, middle, and stop symbols. The middle symbol separates the left side and the right side, which are coded differently.

How many SKUs are in a retail store? ›

Traditional retail grocery businesses have between 15,000–60,000 SKUs in their stores. Our reduced SKU assortment provides a more efficient shopping experience for customers, allowing them to get in and out quickly, and simplifies operations for our Retail Partners.

What is the most reliable barcode format? ›

Code 128 is the most easily read barcode. It also has the highest message integrity because of several separate message check routines. UPC UPC (Universal Product Code) is the most common barcode for retail product labeling. It is seen in most grocery stores across the United States.

Can SKU be duplicated? ›

This feature is useful for managing data in your catalog. SKUs that are identified as duplicates are automatically turned to Status: Duplicate. Users will be prevented from receiving items against these SKUs in the Product Receiving tool.

Can a SKU have multiple barcodes? ›

In Retail POS, you are able to add multiple barcodes that can be scanned alongside the SKU (Stock Keeping Unit). These can be captured on standard and variant products, and used for scanning/selling and inventory management without sacrificing the ability to identify products internally using a SKU.

Is having too many SKUs bad? ›

More SKUs add complexity and costs to your distribution operation. Slow-moving or obsolete inventory clogs storage cube and makes less efficient use of material handling storage equipment. Operating space and primary pick faces diminish while labor and operating costs to work around these constraints rise.

What is a smart SKU? ›

2. Smart SKUs. In this approach, a SKU is generated based on the different attributes of the product. The most common approach for Smart SKUs is to concatenate style name, color name and size name. Example: delancey-white-xs.

What is SKU prioritization? ›

SKU rationalization is the process of determining which products should be kept, retired, or improved based on the myriad of factors that contribute to performance. Sometimes referred to as SKU optimization, this process enables organizations to refine their product portfolios to improve their financial outlook.

How do I create a SKU for my small business? ›

Here's how to generate SKU numbers for your company:
  1. Step 1: Start with a top-level identifier. ...
  2. Step 2: Assign unique identifier in the middle numbers. ...
  3. Step 3: Complete the SKU with a sequential number. ...
  4. Step 4: Input the SKUs to your POS or inventory management system. ...
  5. Step 5: Create SKU barcodes.
Apr 19, 2022

Can you turn a SKU into a barcode? ›

Depending on your format, any alphanumeric SKU can be used as a barcode (What is a SKU number?). You can accomplish this by simply changing the font you are using to a barcode font. Alternatively, you can use online websites, barcode generators that will generate barcodes for you simply by entering your data.

Can a SKU be just letters? ›

A SKU is made up of letters (and often numbers), and is used to name a specific product for inventory management purposes. The letters and numbers within a SKU are abbreviated and are designed to distinguish products from each other by specifying different variables.

What is the difference between UPC and SKU? ›

Let's start with a short answer. An SKU is an alphanumeric code for internal use and is unique to individual retailers or manufacturers. On the other hand, UPC codes are universal and can be used to identify a product no matter who is selling it later on, making it useful for external use.

Can a product be sold without a barcode? ›

No matter what you're selling or where it comes from, it needs a barcode. Every product sold in a marketplace requires a barcode, even–or especially– if you make it yourself. If you are selling“private label” products, those will require a unique bar code number.

Can I sell my product without barcode? ›

Listing the product with barcode number on ecommerce website or any other marketplaces makes the process much more convenient. However, if you don't have a barcode, can you still launch your product in market? Yes, of course.

What are different SKU types? ›

There are 6 different types of SKUs: standard, component, assembly, bundle, collection and virtual. Assemblies, bundles, and collections are made up of several different standard SKUs and components.

What is an example of a SKU format? ›

Example SKU formats

The digits, separated by hyphens, refer to brand, style, and size. For example, she uses the SKU 4225-776-3234 for pants that are brand 4225, leg style 776 (boot cut), and size 32x34 (waist and length).

Can you search an item with a SKU number? ›

Because SKU codes uniquely identify your products, searching for them will help users quickly find exactly what they are looking for.

What is a skew number Best Buy? ›

By definition, a Stock Keeping Unit (or SKU) is a number assigned to a product by a retail store to identify the price, product options and manufacturer of the merchandise. A SKU is used to track inventory in your retail store. They are very valuable in helping you maintain a profitable retail business.

How do I know if my item is in Best Buy store? ›

How can I find out if a product is available in-store or online? To see the most accurate info for your area, sign in to your account before you shop. Be sure to set your local store. Is the selection the same online and in-store?

What is the 80 20 rule for SKUs? ›

The 80/20 principle says that 20% of your SKUs will account for 80% of your sales. My guess is that this is true for your business.It is also possible that 10% or less of your SKUs account for 80% or more of your sales.

Why is marketplace asking for a SKU? ›

SKU (or Stock Keeping Unit) is a unique number that can be used internally to track a business?? Inventory. … These are unique to your business and can be customized to answer the most common questions your vendors or customers have about your merchandise.

What are the 4 acceptable inventory methods? ›

The four main inventory valuation methods are FIFO or First-In, First-Out; LIFO or Last-In, First-Out; Specific Identification; and Weighted Average Cost.

How do you get 100% accuracy in inventory? ›

Here are some important general steps for improving inventory accuracy:
  1. Make sure your warehouse is organized at all times.
  2. Have good inventory naming and labeling practices.
  3. Create and follow documented policies and procedures.
  4. Utilize cycle counting as a more efficient way to count inventory.

What is the ideal inventory formula? ›

To calculate maximum inventory levels, use the following formula: maximum inventory levels = reorder point + reorder quantity – [minimum consumption × minimum lead time].

Who is responsible for the SKU number? ›

Companies are responsible for creating SKU codes for their internal use at their convenience. UPC barcodes are assigned by the GS1. Companies are free to create SKU codes for the products of their own accord.

Is SKU specific to store? ›

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.

Are SKUs universal? ›

SKUs are for internal use while UPCs are for external use. Here's how to use both codes in a small business.
How to tell the difference between SKUs and UPCs.
Unique for each retailer.Consistent across all retailers.
For internal use.For broad use among retailers.
5 more rows
Nov 30, 2021

Can I create my own SKU? ›

SKU stands for 'Stock Keeping Unit. ' It is a unique alphanumeric code that identifies a product to help retailers keep track of their inventory. SKUs can be created manually or using a SKU generator. Most inventory management software and point of sale (POS) system options provide a built-in method to generate SKUs.

What is the difference between product item and SKU? ›

The product is a generic definition of something that is made available in your store, such as "Shirt". Stock Keeping Units (SKUs) are the variations of this product. Products can vary by shape, color, size, among other characteristics.

Can I use UPC instead of SKU? ›

SKUs and UPCs are often used interchangeably for each other because they both serve as product identification numbers.

How many SKUs does target sell? ›

By comparison, Target is much smaller, with net revenues of about $106 billion in fiscal 2021 (which ended January 29, 2022) and about 1,900 stores and 48 distribution centers. According to, the company offers about 75,000 SKUs to its customers.

How many SKUs does target carry? ›

A typical Target currently has about 80,000 SKUs -- retailer jargon for distinct sizes and styles of products offered -- while the smaller stores would have 40,000 to 50,000 SKUs.

What is the difference between a SKU and a UPC? ›

Let's start with a short answer. An SKU is an alphanumeric code for internal use and is unique to individual retailers or manufacturers. On the other hand, UPC codes are universal and can be used to identify a product no matter who is selling it later on, making it useful for external use.

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