What do all the numbers and letters in retail product identification mean? These seemingly random numbers are part of a coding system that contains product information and tracks sales.
SKUs and UPCs are the most common codes you’ll find in both brick-and-mortar stores and on products sold via e-commerce retail. Get a detailed SKU vs. UPC comparison and understand the purpose of each coding system with this guide.
SKU Vs. UPC: The Short And Sweet
A SKU (pronounced “skew”) is an alphanumeric code unique to each variation of each item you sell. SKUs are unique to your business. You’ll often find this on the back of or on the underside of a product package.
A barcode is an image on a product’s packaging that contains many vertical lines, typically above 12 numbers. The 12 digits are known as a universal product code (UPC), and they’re the same for a variation of an item across all businesses.It’s important to note, however, that while all UPCs are attached to barcodes, not all barcodes are required to include a UPC.
What Is A SKU?
A SKU (stock keeping unit), also known as an SKU number, is a unique identifier assigned to each item you sell. Each variety of the same product has its own SKU based on distinguishing factors such as color, size, manufacturer, style, or type. When your business creates SKU codes, you give each product variation a unique identifier that’s much easier to track in your integrated point-of-sale (POS), e-commerce system, and inventory management software.
Every business implements and runs its own SKU system — there’s no universal database for SKUs. That said, most SKUs span eight to 10 alphanumeric characters, with subsets of characters representing a distinguishing factor. For example, suppose a grocer sells salted peanut butter and unsalted peanut butter from the same brand. The salted peanut butter might have the SKU TJ-36-SM-S, whereas the unsalted peanut butter might have the SKU TJ-36-SM-US. The “S” at the end means salted, whereas “US” means unsalted.
The benefits of using SKUs
- Streamlined inventory tracking, including in real-time: With a good SKU setup, every variety of every product gets its own entry in your inventory management system. This setup generates a wealth of rich, in-depth inventory tracking data. Plus, since your point-of-sale system reduces your stock quantity every time a SKU sells, you’ll always have real-time inventory records.
- Obtaining valuable sales data for forecasting and customer product recommendations: Creating SKUs makes it much easier to identify your biggest sellers and slowest movers. This information streamlines inventory management — you’ll know which items to reorder and which to sunset. It also helps you brainstorm new items to start stocking and selling.
- Efficient customer service: Looking up a product by SKU number ensures your customer service team identifies the right product with certainty.
- Automating reorders: For each of your SKUs, set a minimum stock quantity. Then, set your inventory management system to automatically reorder the SKU every time it hits this amount. You’ll never go out of stock again.
- Internal transfers: Suppose you have 20 of a certain item at your first location but you want to move five units to your second location. SKUs enable internal transfers within your inventory management system while maintaining accurate records. No need to manually add a new stock record at each site.
- Receiving orders: With SKUs established for all your products, it’s much easier to add new arrivals to your inventory management platform in bulk. You’ll save precious time while ensuring your records’ accuracy.
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What Is A UPC?
A UPC (universal product code) is a retail inventory tracking number. You likely see UPCs every day below the barcodes that get scanned at points of sale like checkout at a grocery store. Since each UPC code is unique to one product, UPC codes have numerous inventory management use cases.
Within all UPC barcodes are a 12-digit GTIN (global trade item number) that includes a six-digit company prefix, a five-digit item number, and a check digit that verifies the UPC. The five-digit item number is unique to each variety of a product, kind of like a universally accepted SKU.
The benefits of using UPCs
- Streamlined checkouts and happier customers: If barcodes didn’t exist, the employee at your point of sale would need to manually enter every sold item’s information into your database. A barcode scanner immediately identifies a product to your inventory management software. UPC barcode scanning is the heart of why transactions at checkout are so efficient.
- Universal supply chain compatibility: An item’s UPC is the same for any business transaction. In this regard, UPC codes make for easier ordering and reordering.
- Easier handling of product recalls: UPC codes come in handy when your suppliers recall products — just run the products’ UPC codes against your inventory. Then, remove the affected items from your inventory and return them to your supplier.
- More accurate order fulfillment. Since retailers use the same UPC codes as their suppliers and distributors, these numbers eliminate confusion and miscommunication when placing and fulfilling new orders.
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What Is The Difference Between A UPC And SKU?
Whereas your business creates its own SKUs, UPCs are universal for a product across businesses. A UPC code, at 12 characters, is typically two to four digits longer than a SKU number too. Speaking of “SKU number,” this term is a bit misleading despite how common it is: SKUs are alphanumeric, whereas UPC codes contain only numbers.
All this said, your business could theoretically use a product’s UPC code for all the same purposes as its SKU number. However, SKUs are better for internal inventory management purposes, whereas UPCs are designed for universal product identification.
How To Make SKUs
- Set parameters: Each parameter for a stock keeping unit should represent a key aspect of your product. For example, if you sell beauty products, then your parameters could be the type of beauty product as well as the product’s brand, color, material, and units per package.
- Establish SKU-naming conventions: Before you go through the SKU creation process for all your beauty products, decide whether to assign each parameter one, two, or three characters. Also decide which characters not to use — SKU best practices including avoiding zero (“0”) and the letter “o” or “O” since they look alike.
- Assign each parameter a code: For a two-pack of black Revlon matte lipstick, represent “two-pack” with “2P. Use “BK” to signify “black,” “RV” for “Revlon,” “M” for “matte,” and “LIP” for “lipstick.”
- Determine each parameter’s importance: Excellent SKU management ensures you know what a product is the moment you see its code. As such, your SKU should start with the type of beauty product, followed by (in order) its brand, color, material, and quantity. Using your newly created SKU system for your two-pack of black Revlon matte lipstick, you’ll get LIP-RV-BK-M-2P.
- Opt for hierarchical instead of sequential SKUs, with limited exceptions: The SKU LIP-RV-BK-M-2P is hierarchical since it presents each parameter in order of importance. SKUs this granular are ideal for analyzing your sales data and making decisions accordingly. Sequential SKUs, which are just “0001,” then “0002,” then “0003” as you add items, only make sense if your product assortment is unusually small.
- Create your first SKUs and assess: Now that you’ve established how to create SKUs, go ahead and put together a couple dozen. Is each product easy to identify now that you’ve generated all these long numbers? If so, you’re on your way to an excellent SKU management system. If not, consider more effective ways to generate SKU codes.
Automating assigning SKUs to products
Most inventory platforms are capable of auto-generating SKU codes from your item library, settings panel, or another interface. At the same time, inventory management with SKUs requires that you set your parameters before handing this task off to your software. Look for an inventory system that links part of your SKUs to a category so that you both streamline your SKU management and keep your products organized.
Some platforms automatically create SKUs as you print barcodes. This way, each item in your inventory has an internal unique identifier alongside its external universal code. Going this route for SKU creation also ensures that none of your products go from stock to shelf without a SKU.
Most importantly, your inventory and SKU management system should ensure that your codes sync to your POS system. This is the best way to completely integrate everything from your back office to checkout.
How To Use UPCs In Your Store
When UPCs are necessary for your business
You’ll need to learn how to acquire and track UPCs if you plan to sell your products nationally. The same is true if you run a wholesale business that either sells to corporate accounts or is corporate in and of itself.
For example, if you’re looking to land your organic chocolate cookie line on Target and Kroger shelves nationwide, you’ll need UPC codes. This is also true if you’re going the e-commerce route and retailers plan to sell your cookies on their websites. Without these codes, mega-retailers can’t identify how quickly or slowly your products are moving. This data tells them what quantity of product to reorder from you with each shipment. It’s as good for their business as it is for yours.
Notably, you don’t need UPC codes if you sell products only direct-to-consumer. That’s because there’s no third party involved in your transactions — just you and the customer. As long as you have SKU codes for each of your products (these are a must for smart inventory tracking), you’re all set.
How to obtain UPCs
- Figure out how many barcodes you need: Each of your SKUs needs its own UPC code, so create all your SKUs first. The total number of SKUs you’ve generated is the exact quantity of codes you’ll need to obtain through the formal UPC acquisition process.
- Register for a UPC license and account: Go to the barcode application site on the GS1 website. GS1 is the international body that sets standards for how businesses transmit and share data. Follow the instructions to give your business the infrastructure it needs to buy numerous barcodes at once. There are also GS1 packages for obtaining a small number of barcodes for a limited product assortment.
- Purchase your barcodes and register for myGS1 US: After you pay for your barcodes, GS1 will send you an email with instructions to register for its online member center, myGS1 US. Create an account to enable inventory management with UPCs.
How To Use SKUs And Barcodes For Inventory Management
SKUs for in-store retail
Suppose you move 100 white throw pillows sold at your home goods store from your stockroom to your shelves. Each of these 100 pillows has the same SKU, so it’s easy to bulk-update all 100 pillows’ location with your inventory control software. You get time back on inventory tracking while improving your stock records’ accuracy.
Additionally, suppose you receive an order of 50 white decorative pillows from your supplier. Upon unboxing these items and placing them within your stockroom, it takes just one click to bulk-add them to your inventory. You’ll do so under the same SKU, increasing the quantity within your inventory software by 50. When you conduct manual inventory audits and stock counts, it’s easy to confirm accurate quantities. Simply cross-reference your hand counts with the SKUs in your inventory management system. If you find any discrepancies, count again or investigate further.
Wondering where in your store you should display your sink stoppers for purchase? Use your SKU codes to find the answer. If you’ve set “kitchen” and “sink” as two of your SKU parameters, you’ll know to place your sink stoppers in the section with other plumbing products.
SKUs come in handy during sales too. When a customer buys, returns, or exchanges a white sink stopper, your point-of-sale system updates the SKU’s quantity within your software. Importantly, it also adds the item’s sale price to the customer’s subtotal.
SKUs for e-commerce
Although SKUs are primarily a tool for internally organizing your stock, you may want to share them publicly if you run an e-commerce business. This offers another way for customers to search for items so they can reorder the exact product they’ve previously enjoyed.
For example, suppose your e-commerce skincare store sells a line of body lotions and a customer loves your lavender-scented one. It’s easier for that customer to search by the product’s SKU, available in their order confirmation email, when reordering it. Only one product will appear when searching by SKU.
SKUs are also important for order fulfillment, inventory tracking, and data analysis. At the end of your day, if customers have ordered 100 bottles of lotion, seeing 35 orders for SKU LIP-RV-BK-M-2P tells you that 35 orders are for the lavender-scented option. You’ll also see how many of each SKU each customer ordered, making for more accurate picking, packing, and shipping. Plus, each SKU will have a count by storage location, which is important if you have more than one stockroom.
Use this same sales data at the end of the week to analyze your highest- and lowest-selling products. Look at which online ordering channels (Instagram business page, Etsy, your website) yielded the highest and lowest sales per SKU. For marketing purposes, look at each customer’s most-ordered SKUs to determine which products to leverage in personalized marketing campaigns. Use your data to make reordering decisions — and while you’re at it, set a minimum threshold per SKU at which automatic reorders should occur.
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FAQ About SKUs And UPCs
1. What is the difference between a barcode and UPC?
A UPC is the 12-digit number at the bottom of your barcode, and it’s universal to a product no matter where it’s sold. A barcode features a machine-readable sequence of lines allowing you to scan the product. It is typically, but not always, used in combination with a UPC.
2. Do you need both SKUs and barcodes for your store?
Although SKUs aren’t mandated by any governing body, they’re key to all things internal inventory management. Barcodes are governed by GS1, and you need th
3. Can two products have the same SKU?
No, two products cannot have the same SKU. Even different variations of the same product, such as two different sizes of the same dress, should have different SKUs.
4. Are SKUs and serial numbers the same thing?
No, SKUs and serial numbers are not the same thing. For example, all 512GB silver smartphones of the same model and manufacturer should have the same SKU. However, each individual phone will have its own serial number. The latter is useful for tracking the item if customers send it in for repairs or inspection.
Keep Business Moving With UPCs And SKUs
UPCs and SKUs are vital components of a well-run inventory management system. From automating inventory updates, to tracking products as your business grows, both codes are essential to streamlining workflows and keeping accurate records.
Depending on your business model, both code types might not be required — but they make life a whole lot easier when used together, especially if you want to expand to other markets. When combined with the right inventory management software, SKUs and UPCs help you keep business on track, so you’re able to focus on providing top-notch products and unmatched customer service.
