SKU stands for "stock keeping unit" and is a number that retailers use to differentiate products and track inventory levels. An SKU is typically eight alphanumeric digits long. Products are assigned different SKU numbers based on various characteristics, such as price, manufacturer, color, style, type, and size. An SKU is a scannable bar code, most often seen printed on product labels in a retail store.
SKUs aren’t universal; they’re meant to be unique to your business and can be tailored to fit your needs or those of your vendors and customers.
The label allows vendors to automatically track the movement of inventory. The SKU is composed of an alphanumeric combination of eight-or-so characters. The characters are a code that tracks the price, product details, and manufacturer. SKUs may also be applied to intangible but billable products, such as units of repair time in an auto body shop or warranties.
Now, let’s dig into the anatomy of an SKU number. The first part of an SKU is typically the broadest characteristic, such as the department, product category, or supplier. The top two or three alphanumeric characteristics are mapped to this. The next few characters represent features specific to each product — its color, size, brand, or another subcategory. Finally, the last two to three characteristics act as a sequence identifier, allowing your SKUs to tell you the number of products you have and the order in which they were purchased and processed.
Let’s unpack an example of how one retailer — say, a wine shop — may generate its SKU numbers.
Supplier | First Identifier | Blend | Second Identifier | Sequence Identifier | SKU |
| Central Winery | CW | Chardonnay | 21 | 001 | CW21001 |
| Central Winery | CW | Pinot Grigio | 22 | 001 | CW22001 |
A retailer typically uses SKUs to identify their business’s inventory. Most retailers know that SKUs help track products from vendor to customer, but few know how they work behind the scenes and why they’re so important. Whether you’re a retail veteran or brand new business owner, have a massive inventory or limited stock, or operate a brick-and-mortar store or online marketplace, you likely have an SKU architecture in place — or you’re looking to add one.
Tips for your SKU naming convention
- Stay between 8 and 12 characters
- Begin the SKU with a letter, such as the first letter of the supplier or brand
- Never use zero or special characters like !, @, or &
- Create a unique, easy-to-understand format
- Lead with the most shopped-for product characteristics to benefit your retail sales team