What Is a Stock Keeping Unit (SKU)? Complete 2025 Guide

Stock keeping units (SKUs) are the backbone of successful inventory management for businesses of all sizes. Whether you run an online store, manage a warehouse, or operate a brick-and-mortar shop, implementing a robust SKU system helps you track products, prevent stockouts, and maximize profitability.

This comprehensive guide walks you through everything you need to know about SKUs—from understanding their basic purpose to implementing advanced strategies that drive business growth. You’ll learn how to create effective SKUs for your specific business needs and avoid common pitfalls that can derail your inventory management efforts.

What is a stock keeping unit (SKU)?

A stock keeping unit is an alphanumeric code created internally by sellers to identify, receive, and locate their product inventory (also known as “stock”). This type of code, made up of both letters and numbers, is more commonly known as a SKU (pronounced skew). It’s best practice for businesses to assign a unique SKU to each of their products. 

SKU definition and key characteristics

A SKU is a unique internal identifier that businesses create to track and manage their inventory efficiently. Unlike other product codes, SKUs are completely customizable and designed to meet your specific business needs. 

Key characteristics of SKUs include:

• Alphanumeric format (combining letters and numbers)
• Human-readable without special equipment
• Unique to each product variant
• Created and controlled by the seller
• Typically succinct for readability (e.g., eight to 12 characters) but there’s no universal maximum length

Why SKUs matter for inventory management

SKUs form the foundation of modern inventory management systems. According to McKinsey, at least 50% of retail tasks can be automated, with SKU-based tracking being a critical component. 

Effective SKU management helps businesses:

• Track inventory levels across multiple locations in real time
• Identify fast-moving and slow-moving products
• Prevent stockouts and overstock situations
• Streamline reordering processes
• Improve order accuracy and fulfillment speed

Where are SKUs used?

SKUs appear throughout the retail landscape, serving as the universal language for product identification. 

You’ll encounter SKUs in:

• Warehouses
• Retail stores
• Catalogs
• Online stores
• Product fulfillment centers

SKUs help businesses more accurately and easily account for every piece of their inventory in all of their locations. For example, if you run a brick-and-mortar store, it’s best to assign SKUs to all of your products before conducting an inventory audit. That will help you get a complete and accurate picture of your stock, while making the audit process more efficient and scannable for your team.

Benefits of using SKUs

Implementing a well-designed SKU system delivers operational and financial benefits for businesses of all sizes. According to Mordor Intelligence, the global retail industry is expected to reach a value of $27.26 trillion in 2025, and efficient inventory management through SKUs is increasingly critical for capturing market share.

Key benefits of using SKUs include:

• Enhanced inventory visibility: SKUs provide instant insight into stock levels, locations, and movement patterns. This visibility helps prevent costly stockouts that can lead to lost sales and disappointed customers.
• Improved profitability analysis: By tracking sales at the SKU level, businesses can identify their most and least profitable products. This data drives better purchasing decisions and helps optimize product mix.
• Faster order fulfillment: Clear SKU labeling reduces picking errors and speeds up the fulfillment process. Staff can quickly locate products without confusion, improving customer satisfaction.
• Better demand forecasting: Historical SKU data reveals seasonal trends and buying patterns, enabling more accurate inventory planning and reducing carrying costs.
• Simplified multichannel selling: SKUs help maintain consistent inventory tracking across online stores, physical locations, and marketplaces, preventing overselling and improving customer experience.

How to create SKUs: a 5-step framework

1. Define your SKU structure
2. Choose your identifiers
3. Set character limits
4. Create your SKU template
5. Test and implement

Creating an effective SKU system requires careful planning and consistency. Follow this proven framework to develop SKUs that will scale with your business and improve operational efficiency.

1. Define your SKU structure

Start by determining what information your SKUs need to convey. 

Common elements to include are:

• Product category or type
• Brand or supplier (for multibrand retailers)
• Key attributes (size, color, material)
• Location identifiers (for multilocation businesses)

Document your structure before creating any SKUs, to ensure consistency across your entire catalog.

2. Choose your identifiers

Select meaningful abbreviations that your team can easily understand and remember. 

Best practices include:

• Use the first two to three letters of descriptive words (e.g., BLK for black, LRG for large)
• Avoid similar-looking characters (O and 0, I and 1) wherever possible
• Be consistent with abbreviations across all products
• Create a master list of approved abbreviations to refer to when creating SKUs for new products in the future

3. Set character limits

Establish clear limits for each SKU component to maintain consistency. These character limits are primarily up to you, although certain inventory platforms may hold you to their own limits. For example, Shopify accepts SKUs up to 16 characters, while Amazon SKUs can stretch to up to 40 characters.

A product with multiple attributes might have a SKU length that looks like this:

• Product category: Three characters
• Product attributes: Two to three characters per each attribute
• Total SKU length: Eight to 12 characters

Remember that shorter SKUs are easier to manage, but they must still contain enough information to be useful and distinct from one another.

4. Create your SKU template

Develop a standardized template that all team members can follow. 

A typical SKU template might look like:

[Category]-[Brand]-[Style]-[Color]-[Size]

Example: TS-NI-CRW-BLU-M (T-shirt, Nike, Crew neck, Blue, Medium)

Test your template with various products to ensure it works across your entire inventory.

5. Test and implement

Before rolling out your SKU system:

• Create SKUs for a sample set of products
• Have team members practice using them
• Identify any confusion or inefficiencies
• Refine your system based on feedback
• Train all staff on the final system
• Document the process for future reference

SKU best practices and common formats

Following industry best practices ensures your SKU system remains organized and effective, even as your business grows. 

Here are some proven SKU strategies and formatting guidelines used by successful retailers:

• Start broad, then get specific: Begin your SKU with the broadest category and narrow down to specific attributes. This creates a logical hierarchy that’s easy to navigate. It will also help you ensure each SKU is unique across your entire inventory.
• Use consistent formatting: Maintain the same order of attributes across all SKUs. If you start with category-color-size for one product, use that same order for all products. Also stay consistent by using uppercase letters, instead of alternating between upper and lowercase.
• Avoid special symbols and spaces: Stick to letters and numbers only. Using special symbols (e.g., @, #, $, %, &) or leaving spaces between characters can cause system errors with inventory management software and barcode systems. One exception to this rule is hyphens; hyphens are an acceptable and common character option in SKUs and help to separate sections to improve readability. 
• Plan for growth: Leave room in your SKU structure for new products, categories, or attributes you might add in the future.

Once you’ve built out your SKUs, test them with your barcode scanners and inventory software. That will help you identify any areas for improvement and make sure each SKU is functional and connected to its correct product variant.

How long should SKUs be?

The ideal SKU length balances informativeness with practicality. The shorter your SKUs are, the more easily they can be understood by you and your staff, but character length isn’t everything. 

Common advice is to limit each of your SKUs to no more than 12 characters, but actual SKU lengths vary widely across industries and inventory platforms. Instead of focusing solely on SKU length, prioritize clarity, consistency, and readability in your SKUs—then identify areas where you can pare down any excess and be more concise. 

Common SKU mistakes to avoid

Even experienced retailers can fall into these common SKU pitfalls. Learn from these mistakes to build a more robust system from the start.

SKU mistakes to avoid include: 

• Starting with zeros: Many spreadsheet programs drop leading zeros, which can corrupt your SKU data. Always start SKUs with letters.
• Using manufacturer numbers as SKUs: While tempting, manufacturer numbers don’t reflect your internal organization needs and can change without notice. Keep control of your inventory by sticking to your own SKU system.
• Creating overly complex SKUs: Long, complicated SKUs increase the chance of errors and slow down operations. Keep them as simple as possible while still being descriptive.
• Reusing old SKUs: Once a product is discontinued, retire its SKU permanently. Reusing SKUs creates confusion in historical data and reporting.
• Ignoring scalability: A SKU system that works for 100 products might fail at 10,000. Plan for growth from the beginning.
• Inconsistent abbreviations: Using both “BLU” and “BL” for blue across different products creates unnecessary confusion.
• Forgetting about variants: Ensure your system can handle all product variations, including those you might add later.

SKU examples by business type

The attributes and formatting of your SKUs typically depend on the product conventions of your type of business or industry. 

For example, here are some common SKU formats by industry:

• Fashion retail: [Category]-[Brand]-[Style]-[Color]-[Size]
• Electronics: [Type]-[Brand]-[Model]-[Capacity]-[Color]
• Home goods: [Room]-[Category]-[Material]-[Size]-[Color]
• Food products: [Category]-[Brand]-[Flavor]-[Size]-[Pack]

Let’s look at some more in-depth examples of SKUs that show how different types of businesses structure their product identifiers.

Multibrand retail business SKU

If you’re a business that resells products from a variety of brands or manufacturers, you’ll need SKU formats that accommodate multiple variables. That’s because your SKU will need to account not only for common characteristics like product size, color, and type, but also for who made the product. 

For example, a neighborhood shoe retailer might sell shoes from a variety of brands. This requires tracking inventory by brand alongside style, size, and color.

Consider a shoe retailer creating a SKU for one of its products sourced from the brand Allbirds: the Women’s Tree Runner NZ sneakers. 

The SKU for that product in a navy blue women’s size 9 could look something like this: 

AB-SNK-NV-W9

That SKU would translate to: 

• AB: The product’s brand or manufacturer, in this case Allbirds.
• SNK: The product’s type or style, in this case a sneaker.
• NV: The product’s color, in this case navy blue. 
• W9: The product’s size, including gender designation, in this case women’s size 9.

Single-brand DTC business SKU

Direct-to-consumer (DTC) brands that exclusively sell their own products have different SKU priorities. In this case, unlike a retail store that sells products from multiple brands, you may not need to include manufacturer codes in your SKUs. 

For example, to streamline warehouse operations, DTC gender-neutral clothing brand TomboyX might focus their SKUs on details like the type of apparel, fabric type, sizing, and apparel collection. Since they don’t categorize their products by gender, that apparel attribute is unnecessary in their SKU structure.

If you were creating a SKU for the TomboyX Essentials Soft Bra - Black Rainbow Logo, you’d focus on the most relevant product attributes. 

The SKU for that product in a size 3XL could look something like this: 

BRA-RBW-BLK-3X

That SKU would translate to:

• BRA: The type of apparel, in this case a bra.
• RBW: The product collection, in this case the Rainbow Pride collection.
• BLK: The primary color of the product, in this case black.
• 3X: The size of the product, in this case a gender-neutral 3XL. 

Marketplace seller SKU examples

If you sell on multiple online marketplaces (e.g., Amazon, eBay, or Etsy), your SKU system needs additional considerations. 

Marketplace sellers often include channel identifiers to track where sales occur and manage channel-specific inventory. This process helps marketplace sellers quickly identify which channel inventory is allocated to, which helps prevent overselling across platforms. 

The format for a marketplace SKU structure might look like: 

[Channel]-[Category]-[Brand]-[Model]-[Variant]

For example, an Amazon seller might create a SKU like this: 

AZ-EL-AP-I15-BK-128

That SKU would translate to:

• AZ: Marketplace (Amazon)
• EL: Category (Electronics)
• AP: Brand (Apple)
• I15: Model (iPhone 15)
• BK: Color (Black)
• 128: Storage capacity (128 GB)

SKU vs. other product identifiers

Understanding the differences between SKUs and other product identifiers is crucial for effective inventory management. Each identifier serves a specific purpose in the retail ecosystem.

SKU vs. UPC comparison table

SKU vs. model numbers

Model numbers are distinct from SKUs. Each unique model number is generated by the product’s manufacturer and cannot be altered by retailers. 

While SKUs are typically internal codes that customers don’t see, model numbers are visible and useful to customers. Because a product’s model number is the same regardless of where it’s purchased, customers can use the model number when seeking manufacturer support. 

SKU vs. serial numbers

Serial numbers typically are reserved for consumer electronics products, such as cellphones, game consoles, and kitchen appliances.

The term “model number” is sometimes used interchangeably with “serial number,” but the two numbers are as distinct from each other as they are from SKUs. Like model numbers, each product’s serial number is created by its manufacturer and cannot be customized by sellers. 

However, unlike model numbers, each serial number is unique to each individual unit, not shared with any other products in their model or elsewhere. 

Serial numbers are customer-facing, meaning they’re easy for customers to locate and identify. For example, it’s common for manufacturers to request a product’s serial number to process a return or repair. 

SKU vs. ASIN (for marketplace sellers)

Amazon Standard Identification Numbers (ASINs) are another important identifier for ecommerce sellers. Understanding the distinction between ASINs and SKUs helps marketplace sellers manage inventory effectively.

Here are their key differences:

• ASINs are unique to Amazon’s catalog and assigned by Amazon.
• One product has the same ASIN across all Amazon sellers.
• SKUs remain unique to your business, even when selling on Amazon.
• You’ll map your SKUs to Amazon’s ASINs in your seller account.
• ASINs are 10 characters long and start with “B0.”

Pro tip: Include the ASIN in your internal documentation, but keep your SKU system independent for flexibility across sales channels.

Advanced SKU strategies

Once you’ve mastered basic SKU creation, these advanced strategies can help optimize your inventory management and boost profitability. With 70% of retail leaders now relying on data analytics to guide purchasing decisions, sophisticated SKU management has become essential for competitive advantage.

Using SKUs for inventory forecasting

SKU-level data provides the granular insights needed for accurate inventory forecasting. 

By analyzing historical sales patterns at the SKU level, you can:

• Identify seasonal trends: Track which SKUs spike during specific times of year and plan inventory accordingly. For example, a clothing retailer might notice that the SKU JK-DM-BLU-L (blue denim jacket, large) sells three times as many units during the fall season. Now they know to stock higher quantities of that product at that time of year. 
• Calculate reorder points: Use the formula (Average Daily Sales × Lead Time) + Safety Stock. SKU-level tracking makes this calculation precise for each product variant. For example, an apparel brand might have a popular tank top in hot pink that sells twice as quickly as the teal product variant for the same tank top. With SKU-level tracking, you can set different reorder points for each of those product variants to reflect stock needs.
• Optimize stock levels: Maintain just enough inventory to meet demand without tying up excessive capital in slow-moving SKUs. 

SKU velocity and profitability analysis

SKU velocity measures how quickly products sell through your inventory. Since each SKU is selling at a different rate, this metric helps you track those varying SKU velocities and maintain healthy stock levels accordingly. 

There are a few different formulas businesses use to calculate SKU velocity, but here’s the most common formula: 

SKU Velocity Ratio = Cost of Goods Sold (COGS) ÷ Average Inventory Value

When you use this formula for each of your SKUs, you’ll be able to discover each SKU’s velocity ratio. Typically, an inventory velocity ratio between 2 to 4 is considered healthy turnover. That means a SKU is being restocked two to four times annually (i.e., medium velocity).

For SKUs with a velocity ratio above 4, you may want to find ways to increase order quantities to reduce per-unit costs for those high-velocity SKUs.

On the other hand, if any of your SKUs have a velocity ratio of 1 or less, it may be time to reevaluate whether those products are worth stocking anymore. Low-velocity SKUs tie up capital and warehouse space that could be used for more profitable products. Consider marking down these SKUs to clear dead stock, or rethink your marketing strategy to see if you can get those units moving more quickly. 

Once you have this SKU velocity data, you can use it as part of your store’s profitability analysis. In short: When you can identify your most profitable SKUs, you can allocate resources accordingly to increase cash flow and grow your margins.

Automating SKU management

Modern inventory management systems can automate many SKU-related tasks, improving accuracy while saving time. 

Key SKU automation opportunities include:

• Auto-generated SKUs: Set up rules in your system to automatically create SKUs for new products based on their attributes. This ensures consistency and saves time during product onboarding.
• Barcode printing: Integrate your SKU system with label printers to automatically generate scannable barcodes when products arrive.
• Low stock alerts: Configure automatic notifications when SKU quantities fall below predetermined thresholds.
• Reorder automation: Set up your system to automatically create purchase orders for high-velocity SKUs when they reach reorder points.
• Cross-channel syncing: Use inventory management software that automatically updates SKU quantities across all sales channels when a sale occurs.

According to recent retail trends data, retailers who implement SKU-level automation report 30% fewer stockouts and 25% reduction in excess inventory.