It’s a natural progression for eCommerce stores to increase the number of products they carry as business expands. If you can meet the growing needs and demands of customers, you can capture more market share from your competitors.
While growth is a good thing, rapid growth can lead to SKU proliferation. If you’re not already using a SKU generator and an established process to track products internally you could be losing money.
The more products you carry, the more likely you are to have mispicks and lost inventory along with a host of other problems related to your inventory.
According to PeopleVox, human error is the number one issue in 46% of warehouses. That’s why so many brands are refining their processes for SKU generation as well as improving internal tracking systems.
Using a SKU generator and improving your SKU generation process early on reduces the potential for errors. In this article we’ll look at how better SKU management can optimize inventory control and share SKU generation best practices for eCommerce brands.
What is a SKU?
A SKU (pronounced ‘SKEW’) is short for Stock Keeping Unit
A SKU is made up of alphanumeric characters and is designed to be unique to a single product type. It’s important to note that the SKU is not the same as a product’s UPC, though some retailers mistakenly use the UPC as the product SKU in their system.
The difference between a SKU and a UPC
The UPC (Universal Product Code) is a universal code established by the Global Standards Organization. This code identifies the manufacturer or brand and then the item. It’s also a purely numeric code.
A SKU, on the other hand, is an internal code created and managed by the retailer (you) in an internal system specifically to identify product traits and differentiate products from one another.
A well-designed SKU should provide the most critical information about a product. This could be anything pertinent including:
How SKUs Are Used
Because SKUs are internal and unique to your business, they’re ideally used to help you analyze data around product performance, trends, and inventory control. Because a SKU is unique to your business, it’s important to generate SKUs with an architecture based on your needs and the most important indicators you want to track.
Here’s an example of how a clothing retailer might use various information and codes to create a trackable SKU.
Using the example above, a retailer could view sales reports to see which SKUs are selling the most (or moving the slowest) right down to the specific product variation such as color.
There are a number of benefits to smart use of architecture and a SKU generator.
Targeted product promotion
Analyzing the data around how SKUs are moving makes it incredibly to target product-specific promotion. When you can easily identify the biggest generators of profit you can create campaigns and custom landing pages to promote them.
You can also give those products a featured spot on high-traffic pages where customers can easily find them in order to drive targeted traffic.
Improved product forecasting
When every product and its variations have a designated, unique SKU it becomes infinitely easier to forecast your sales.
Forecasting is a given if you want to meet customer demands and it’s a critical step to avoid running out of inventory on popular products during holidays or around promotional periods.
When customers can’t find the product they want, they may try to find a substitute.
Worst case… they find the product at another retailer.
Harvard Business Review studied more than 70,000 global consumers to discover that a large segment of customers take their business elsewhere. In fact, 7% to 25% of consumers faced with a stock-out will continue shopping but won’t buy a substitute for their desired item at the store; 21% to 43% will actually go to another retailer to find the product.
If you’re not using a SKU generator and structured process to forecast inventory needs, then you can lose nearly half of intended purchases due to being out of stock. Those abandoned purchases translate into sales losses of about 4% for a typical retailer.
A SKU generator lets you get granular when forecasting
A key reason SKUs can be so helpful goes beyond seeing which products are moving and need reorders. For the purpose of forecasting, paying attention to SKUs lets you identify how customers are buying the products in your store.
More specifically, you can identify the attributes and variations most attractive to their respective customer segments.
“…most of the time customers don’t buy products; they buy a bundle of attributes,” writes Marshall Fisher and Ramnath Vaidyanathan in an article for Harvard Business Review. “Think about the last time you bought a TV. Did you say, ‘I want TV X’? Or did you think about screen size, resolution, price, LCD versus plasma, and brand?”
Tracking the sale of existing SKUs to forecast the demand of product variations gives you a more scientific approach to testing campaigns – rather than just trying to promote product variants on a hunch based on how parent products are selling.
Expeditious Order Picking
As the number of products in your warehouse grow, the longer it takes for your team to locate those products. Likewise, as you start carrying more variations of your products it’s more likely for your staff to pick the wrong item.
Using a SKU generator brings efficiency to your warehouse while reducing the potential for human error.
For example, let’s say you sell video game consoles in identical or very similar packaging with the only variation being the size of the hard drive.
Having a unique SKU generated for each variation makes it easier for your picker to select the right product when visually similar or identical boxes might otherwise create a customer return issue.
And your team can find those products faster
As an added bonus, you can position products in your warehouse for faster routing with SKU profiling. This way, popular items are in the easier-to-reach locations while slow moving products are moved toward the rear of your warehouse.
Creating SKUs for your business
There are two ways to create the SKUs for your eCommerce store: manual or with a SKU generator.
The process is (or should be) similar either way. Using a SKU generator is mainly to take out much of the tediousness of the creation process. A good SKU generator should be automated to the point where it can read the attributes for all the products you have in order to create SKUs based on a logical architecture and established item and attribute codes.
This will vary between eCommerce platforms because they all have different native features and app marketplaces.
The Auto-SKU Generator won’t work if you have any of the options set as “not required” or if the options you have will result in more than 600 variants of a product.
Shopify SKU Generator
Shopify doesn’t offer a native SKU generator with its platform. However, you can still use a plugin to help automate the process. The Shopify App Marketplace has a variety of approved warehouse management and product management apps that include a SKU generator.
Look for quality extensions like Logiwa and Katana with high ratings and integrations across multiple platforms.
The same applies to a few other popular eCommerce platforms. WooCommerce (for WordPress) and Magento both lack a native SKU generator. Because they allow for 3rd party integrations you can find plugins for WooCommerce and extensions for Magento for warehouse and inventory management that can make SKU generation much easier.
Manual SKU Creation without a SKU Generator
Manual SKU creation is easy to do though it can take a bit longer without a SKU generator. Especially if you have a large product catalog with thousands of variations. Virtually every major eCommerce platforms provide an option to import/export product lists using a CSV or spreadsheet.
With an existing product catalogue, you can export your products and quickly create SKUs based on the product options listed for each variant.
If you’re going to upload your first product list to populate your store, you can also add a SKU field to generate SKUs using the process and architecture you’ve defined. Platforms like Shopify offer a product template spreadsheet with named columns. This includes a SKU field.
Remember, SKUs are unique to your business
Because SKUs vary from one business to another, you can put whatever data you like in the SKU field on the spreadsheet. Your eCommerce platform will pull that data and use it to populate the SKU field when each product is created.
Likewise, if you’re manually creating each product in your store – common for those with relatively small catalogs – you can just type in the SKU when filling in the other product fields.
Best Practices for SKU Generation
Whether you’re creating SKUs manually or with a SKU generator you want to follow some established best practices.
1. Use a SKU generator
A SKU generator simplifies the entire process. While it may be easy to manually create SKUs when you’re a small startup, manual creation isn’t really a scalable process. Especially not for enterprise brands with a rapidly expanding catalog.
Even if you can’t find software to assist with SKU generation, consider using a 3rd party free SKU generator that can read your product options and quickly generate logical SKUs for you.
A coding system is an integral part of SKU generation. While randomly generated numbers can provide unique SKUs, it can make SKU referencing difficult later when you’re analyzing data or need to add SKUs to variations within a specific product set.
Create an established code that applies to key item attributes and product types. These are usually abbreviations that are always used for every iteration of a brand, product type, category, attribute, etc.
For example, you can create established codes for color...
...for the brands you carry...
...and for product sizes and more.
When you put these codes together you get a SKU unique to that specific product variation.
This coding system and a standard format ensures that your SKUs are always easy to understand no matter who looks at them.
Once you have an established coding system, make it accessible to your team for reference and ensure it’s an established part of training for all of your employees – not just those who handle and ship your products within the warehouse.
Just remember to avoid overloading your SKUs. Try to keep each code to 2 alphanumerics if possible.
3. Establish a standard format
Whether using a SKU generator or manual process you should establish a standard format. This way interpretation of your SKUs is never questioned if you have codes within your SKU that code be misread. The best approach is start with the highest or most important product information first and end the SKU with codes applicable to the options in product variants.
Options with more variations should be at the end while options with only a few options (like gender) should go at the beginning – but after the product category and product type.
For example, you would align your codes like this:
Brand > Product Category > Product Type > Gender > Material > Size > Color
Once you have a standard format, always generate SKUs in the same format. This makes it easy for your teams to understand what each code represents when trying to match a SKU to the product their picking or shipping.
In the interest of keeping SKUs short so as not to overload your SKU, try to limit the number of code sets you include. You only need enough to identify the specific product variation.
Some products require a lot of info to identify. Take this example of a SKU for a single type of nail.
If you must include a lot of detail in your SKU formats, find ways to create SKU codes no longer than three characters. Ideally, aim for two characters.
Or find ways to make numbers work for you instead of using multiple characters.
For example, if you have 9 different brands you could assign them the numbers 1-9 instead of using a 3 or 4 letter abbreviation for the brand name.
4. Avoid using similar letters and numbers
SKUs are read frequently by your team members, often at a glance. They also may need to be typed by hand fairly often. So, avoid using letters and numbers that can be easily misread because they look similar.
For example, it’s too easy to mistake a capital ‘i’, a lowercase ‘L’ and the number ‘1’. The same goes for the number ‘0’ and the letter ‘O’.
5. Make SKUs easy to understand and identify
SKUs help make heads or tails of data while also streamlining the process for your team members who spend their days stocking, picking, packing, and shipping product. This is why it’s essential to create a coding system and format everyone can understand.
Remember, it’s not just your warehouse crew that need to interpret SKU data.
Your customer service team will inevitably need to cross-reference this data when helping customers.
Your marketing team will need to be able to identify products based on SKU for analyzing data as well as creating product-specific discounts within your eCommerce platform.
An easily-readable SKU can be rapidly sorted and spotted within spreadsheets full of data, and also easily filtered when reviewing large data sets.
In the above example, the SKUs for a Nike Echostar shirt make it easy to determine the brand, product type, product name, size, and color at a glance.
6. Don’t start SKUs with the number 0
Ideally, you’re not using the number 0 at all to avoid confusion with the letter ‘o’. However, if you must it, never use it to start your SKU. Some software may interpret the number 0 as nothing and could omit the first digit.
For example, if you use a SKU generator and your SKU for a particular brand of black hat reads as “023-HT-BLK” then one of the software integrations you use may interpret that as “23-HT-BLK”. Since you never know when you may add new software or change your warehouse management system, it’s best to avoid putting yourself in that situation.
7. Make sure SKUs are unique
A good warehouse management system will automatically flag a conflict if you try to create a SKU or load a product into the system when that SKU already exists for another product. Don’t assume that your software will catch it though.
If you’re using a SKU generator combined with good coding and architecture practices, you shouldn’t have to worry about duplicating SKUs.
For manual SKU creation and manually loading SKUs into your products, be sure to double check your SKU codes. Especially when adding new products and new option codes to your architecture.
8. Don't use spaces
Each code that makes up your SKU should be separated in order to make codes easier to read. However, never break up your SKU using spaces.
This can create errors in reading SKUs when a person isn’t certain if multiple sets of numbers apply to the same string or SKU.
Also, some software may interpret a space as a hard stop and ignore any data that comes after the space.
Instead, use a dash between each code in your SKUs. A good SKU generator should do this automatically but be mindful of using dashes when manually creating and entering SKUs.
From the example above, the SKU would read as JJF-TS-SML-GN
Other Apps For Managing A Large Number of Products
In addition to using a SKU generator, you should take advantage of other apps that are available to you for managing your inventory.
For each product you add to your store, you'll need to create a new product page, of course. This can be quite time-consuming if you're in a period of rapid growth and inventory expansion.
There are tools that can help you create new product pages quickly. For example, the Shogun page builder app (available on both Shopify and BigCommerce) makes this process especially fast and easy. You just pick the elements you want to add (the element library includes everything from text blocks to image galleries to countdown clocks) and drop them into your page. Each element is highly customizable, and there's no coding required.
Shogun also has a syncing feature for businesses that have multiple online storefronts. With this feature, you can save time by copying product pages from one store to another with just the click of a button.
Streamline Your Processes with a SKU Generator
A SKU generator bundled with warehouse and inventory management software make it much easier to read and interpret data behind the scenes.
They also help reduce overhead costs and improve customer satisfaction by reducing the amount of human error that occurs naturally with packing and shipping products to customers.
Even when using a SKU generator, the best practices listed above ensure that you’re creating easily readable SKUs with an architecture that will scale with your business even when you’re faced with SKU proliferation.
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Derek is the founder of Thunder Bay Media and lover of everything related to content writing and copywriting. He has 15+ years of copywriting, content writing, and digital marketing experience and is a featured guest blogger published by more than 30 marketing publications.