A SKU is shorthand for Stock Keeping Unit. A sku is essentially a unique code, made from numbers and letters that is used to track your inventory.

A SKU differs from a UPC (Universal Product Code) in that the SKU needs only to be unique to your products and does not have to be registered with any organisation to be used.

SKUs should be created for each product you sell: in this way you can uniquely identify each of your products and can thus assign more information to them to allow you to track them more effectively.

For an example, let's say that you may make candles in various fragrances and sizes. A sample of your stock list may look something like this:

Jar Candle: Medium Lemongrass
Jar Candle: Large Lemongrass
Pillar Candle: Large Cinnamon
Pillar Candle: Medium Lemongrass

Using lengthly names like the ones above for inventory management can be prone to human error as you are relying on the characteristics of each of your products to identify them. If you read the name slightly incorrectly, you may be packaging up a Medium Lemongrass rather than a Large, or making a batch of the wrong candle format which can be quite a costly mistake.

Let's now look at the product list again with a simple SKU attached to each one:

JCML - Jar Candle: Medium Lemongrass
JCLL - Jar Candle: Large Lemongrass
PCLC - Pillar Candle: Large Cinnamon
PCML - Pillar Candle: Medium Lemongrass

The SKU code here was generated by using the first letter of each word in the title. You might find that this extremely abbreviated method takes out too much of the description for the product, so let's try adding a couple more letters to the code and some hyphens to improve the SKU code further.

JC_MED_LEM - Jar Candle: Medium Lemongrass
JC_LRG_LEM - Jar Candle: Large Lemongrass
PC_LRG_CIN - Pillar Candle: Large Cinnamon
PC_MED_LEM - Pillar Candle: Medium Lemongrass

A good SKU code is one that is quick to read and write, but also is one that can be "read" in some way by all members of your team so there is always a balance to be found. You'll also want to make sure that you are consistant with the naming structure you have developed and use this reliably for each new product you create going forward. We have more guidelines on how to create good SKUs for your handmade business here.

Once you have your SKUs worked out, you'll want to make sure that you implement them in every step of your process. You'll want to ensure that:

  • All sales channels that you use online have SKUs referenced to each of your products that you sell
  • Your Manufacture logs refer to the SKUs that you have produced
  • Manual stocktakes should clearly reference each SKU and the number in stock
  • Wastage and breakage should be recorded by SKU

Want to learn more about handmade inventory management?

It's a fact: inventory tracking improves both your business and your bottom line. Our eBook introduces online craft sellers to the absolute basics of inventory in an easy to understand way, giving you the knowledge you need to finally get your inventory, costs and taxes under control.

Topics covered include:

  • Reasons why inventory tracking is essential for handmade business
  • Inventory Assets vs. expenditures
  • Supplies and materials
  • Direct and Indirect Expenses
  • Methods of Valuing your Inventory
  • Perpetual vs. Periodic Tracking
  • Stocktaking Strategies

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