SKUs Best Practices for Your Business

Managing SKUs may seem like a daunting task, especially for first-time business owners with limited experience regarding inventory management. If SKUs look complicated to you, don’t worry. We’ve broken down SKUs and how they work in our previous article, so do read that first to help you get started.

Now that you’re ready to implement SKUs for your business, how can you ensure that you use them advantageously? This article will discuss the best practices for SKUs to help you uncomplicate the process and manage inventory more efficiently.

1. Set a framework for your SKUs

When naming SKUs, it helps to set a framework to avoid confusion and make them easier to understand. Some prefer to use all letters, while others rely on numbers to create SKUs. While there is no set standard, here are a couple of tips you can use when setting a framework for your SKUs:

  • Keep the SKUs under 8-12 characters. The shorter the codes, the better it’ll be for managing inventory.
  • Alternate between letters and numbers for each attribute code. Doing so helps highlight the product’s main attributes easier as opposed to stringing long letters or numbers.
  • Pick up to four attributes for your product to designate codes. For example, if you primarily sell t-shirts, you can create codes according to their style, size, color, and material.
  • Each code should have up to 3 characters max. By selecting four main attributes and limiting their codes to three characters, you keep your SKUs short and simple.
  • The first two attributes should provide the most information about your product.
  • Avoid using letters and numbers that look similar to one another. For example, the letter O looks identical to the number 0, which can lead to scanning errors if left unchecked.
  • Do not use special characters when creating SKUs as it can cause scanning issues. Stick to letters and numbers as much as possible.

Once you have a framework for your SKUs, you can use it across all your products for coherence. The only differences will be switching up the attributes and creating unique codes for each item.

2. Use the data gathered by your SKUs

SKUs do more than just classify your products; they also aid your business in making data-driven decisions. Look into your SKUs to highlight sales trends and identify which products are moving slowly. By taking a close look at the numbers, you can better manage your inventory and keep your stock levels sufficient to fulfill orders.

You can also use SKUs to determine how each product is generating sales. All you need is to group the product’s SKU, sales price, cost, and gross profit into a spreadsheet. Monitor the products with the highest profitability and see if the numbers indicate they’re worth restocking.

Some products make up for the lower gross profit through sales volume, so make a decision based on the data gathered by your product’s SKUs.

3. Make sure your SKUs are scalable

As your business grows, you’ll carry more products in your inventory. If your SKU architecture isn’t built to accommodate an expanding product line, you’ll find it difficult to classify your items. So, it’s a good idea to ensure scalability when creating SKUs to help maintain coherence and ease of use.

The question is, how do you create SKUs that are scalable? There are many different ways to achieve this. For example, if you sell kitchen tables and plan to add chairs in the future, you can sell them as a kitchen table set and use a single SKU for them.

These SKUs are called SKU sets, and they allow you to bundle products together without needing unique codes for each item. Another way to ensure SKU scalability is to use only the main differentiating attributes of a product. For example, you can classify products by brand to easily identify and locate products from your inventory.

SKUs help identify which products are best-sellers and which ones aren’t.

4. Take advantage of SKU generators

Let’s be honest — creating SKUs is a time-consuming task, especially if you have a diverse product line. Small businesses have their hands full with managing product listings and running a functional website, making it difficult to create unique identifiers for each item.

But you don’t need to spend countless hours creating SKU codes when there are free (and paid) SKU generators online. These tools help simplify the SKU creation process through automation and smart categorization. SKUs are sensitive to errors, and even the smallest of mistakes can lead to big headaches down the line.

By using an SKU generator, you limit the mistakes and ensure consistency across all of your SKUs from different products. You can test out a free SKU generator to get a feel for the software and then upgrade to a paid version to unlock more features like automatic SKU generation and support for product scalability.

5. Set reorder points for SKUs that sell

Some items sell faster than others, so it wouldn’t make sense to order the same amount of inventory for every SKU at the same frequency. 

There is a simple reorder quantity formula you can use to determine points for each SKU. To calculate it, you simply multiply the average daily units sold by the average lead time:

Optimal Reorder Quantity for an SKU = Avg. Daily Units Sold x Avg. Lead Time

Calculating reorder points helps optimize SKU levels and ensure you replenish inventory in time. Though the calculation is simple, it can be a time-consuming process to manually calculate reorder points for a variety of SKUs.

Many inventory apps help you use historical data to determine an optimal reorder point for each SKU and automatically set reorder points. This takes the manual work out of the equation, and you also will have data aggregated to pull for inventory reporting.

In summary

Efficient SKU management starts with laying down the right framework. From there, it’s all about how you utilize these unique identifiers to better manage your inventory and make data-driven decisions. These SKU best practices will enable you to utilize SKUs to their full potential with scalability and ease of use in mind.

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