310 | What is a SKU and Why Do I Need Them? with Katie Hunt
Do you find yourself fresh in the wholesaling journey? Are you asking yourself whether you need a SKU system? And if you do, how do even you create them?
In this episode, I’m answering some frequently asked questions often heard at Paper Camp, regarding creating and utilizing SKU systems.
Listen in to hear tips on setting up your SKU system early on in your wholesaling journey and why I believe you shouldn’t overcomplicate your SKU systems.
Today’s episode is brought to you by our free, on-demand wholesale audio series.
In this audio series I’ll walk you through the biggest mistakes and most common questions folks have when they are starting and scaling wholesale—so you don’t make the same mistakes myself and others did.
You can binge this audio series in less than an hour and you can listen on the go in your favorite podcast player. No fluff here, just concrete action steps and answers to help you simplify and strengthen your wholesale sales.
What is a SKU?
Let's start with what is a SKU. SKU stands for stock-keeping unit.
A SKU number is an internal item number to help you identify each product in your collection. It is the number that a wholesale customer will use when placing an order with you.
These are not UPC numbers. They are internal product numbers that you create and use for your business.
It is important to note here that each and every product you sell to wholesale will have its own SKU number
Why Do You Need a SKU Number?
If you want to sell wholesale, you should have a SKU system in place.
Sometimes people think they don’t need SKUs when they start out. But we don't want to have to backpedal. We don't want to have to redo work.
We want to have accurate data points to reflect on when we're looking at sales reports or inventory management, and SKU systems are going to help you with that.
Having a SKU system benefits you and your team internally as well as your customers externally.
Having SKUs:
organizes the sales process
ensures that you and your customers are referring to the same product
leads to fewer errors with order submissions and processing
helps to streamline customer communication
Inventory management is a huge battle for most product-based businesses, particularly as they grow. Your internal logistics will be much more smooth if you have SKU systems in place.
And again, this is particularly important as your wholesale business scales operations and its sales.
For example, rather than having a customer tell you that they want the green bandana with cats on it (but not the light green one! They want the dark green one), they'll provide you with a SKU number, and everyone knows what is needed to ship.
How Do You Create a SKU System?
We want our SKU system to be simple and intuitive. We recommend using an alphanumeric SKU number, meaning a mix of letters and numbers for each SKU.
You ideally want your SKU number to provide guidance for which product categories or product variations it represents.
We typically recommend 2 to 3 letters attached to 2 to 3 numbers that make up your SKU. The reason for this is that it's easier for the human brain to remember and process alphanumeric numbers. If you have just letters or if you have just numbers, there's more room for human error.
So we recommend mixing it up, doing a mix of letters at the front end and numbers at the back end.
SKU System Examples
Now here are some examples. Let's use our green bandana with the cats example. Our SKU for that might be BDGC001.
BD would represent the category of bandanas. So, for any bandanas that we have, we will start with BD.
GC represents the style or variation. For this example, it describes the green cats.
001 represents that it's the first SKU within that category. The next bandana would get 002
If we have other bandanas, we would have them again be BD, and maybe it's blue elephant. So it's BE and then 002 because that'll be the 2nd bandana in the collection.
Our two SKUs would be:
BDGC001 (bandana, green cats, 001)
BDBE002 (bandana, blue elephant, 002)
If you sell occasion-based products, it would make sense to work those details into your SKU. Some examples include:
Birthday products might have BIR at the beginning of the SKU
Holiday products could have HO at the beginning of the SKU
Candles could start with CN or CD, and then you could add two letters to indicate the scent of each candle or the size of each candle
Apparel might include letters that correspond to the season. SM for summer with the year attached to it
Common Mistakes with SKUs
I have had students join Paper Camp without SKUs, and they typically have a couple of issues.
They either didn't have SKU numbers because they hopped on a platform like Faire where they didn't necessarily need SKU numbers.
The other problem they run into is having long & confusing SKUs.
Avoid Long SKUs
You want to avoid overly long and complicated SKUs. Long and complicated SKUs run the risk of errors in the ordering and fulfillment processes. It's hard for humans to remember long numerical code, and it leaves room for errors in that process.
I think about times when people have given me their credit card number or my kids read off a gift card number to me. We have to go back through it very carefully because just one number off will give us the wrong information that we need.
If your SKU is off by one number, you may send the wrong product, and we definitely don't want that.
Avoid Similar SKUs
You also want to avoid SKU numbers that are too similar to each other.
If you have SKU numbers that are the same exact except one digit is changed or one letter is changed, that may lead to errors in that ordering and fulfillment process.
Give SKUs Room to Grow
You want to give your SKU systems room to grow, meaning you want to have flexibility in your numbering system to add SKUs during future product releases and have them still fall in line with your existing SKU system.
For this reason, I often recommend that the letters of the SKU articulate the product category, the style, or the variation.
And then, we follow that up by three digits to identify which item number that is. By having three digits, you can start with 1, then go to 2, and so on, up to 999, before you need to add a 4th digit to the SKU system.
You'll have room to grow in that respect. Think of the bigger picture here when you're creating these SKUs.
Discontinuing a SKU
One last consideration I want to mention is that if you discontinue a product, you should also discontinue the SKU.
Inside of LABS, we have a training on discontinuing product as it is an important part of running a product-based business.
In that training, I talked about how you should not replace the discontinued SKU with a different product.
Let's pretend you have a birthday product and the SKU is BIR003.
If you decide to pull that from your catalog, you will no longer have SKU number BIR003. It will be grayed out. It will be discontinued.
As you make new products, you will not fill in BIR003.
This way you avoid confusion. Are they wanting the old BIR003? Are they ordering from an old catalog? We want to make sure it’s very clear that each product has its own unique number.
Creating a SKU System for Your Business
As you can see, there are many ways to set up your SKU systems. You want to do so in a way that makes sense for your brain, your internal business systems, and your ordering and fulfillment processes.
We want our SKU numbers to clearly and quickly show us which products people are ordering.
It really gets helpful as we scale and we're running inventory numbers or sales reports; we're going to base those reports off of the SKUs, and we want things to look organized and streamlined so that it makes our job of crunching our numbers much easier.
Ultimately, do what works for you and remember to keep things simple. That's the biggest piece of this. Keep it simple.
I also want to strongly encourage you to think carefully about your SKU system and set it up as early as possible in your wholesale journey. It can sometimes be difficult to go back and change the SKU system once it's out in the world.
Quick Links
Here is a quick recap of links to other helpful blogs and podcasts shared in this post.
If you have ever wanted to pick my brain, or get my eyes and ears on your business, Proof to Product LABS is the place to do it. We cover many of the strategies Brigida talked about in her episode & you can get access to those same trainings!
We have monthly group coaching calls and a wide range of On Demand training specifically for product-based business owners. We open up the doors a few times a year so be sure to sign up to learn more!
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Connect with Katie Hunt
Katie Hunt is a business strategist, podcaster, mentor and mama to four. She helps product based businesses build profitable, sustainable companies through her conferences, courses and coaching programs.
Website: prooftoproduct.com | Instagram: @prooftoproduct
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