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What is a Contribution SKU? [2023 Update]

2.5 Minutes

In this article, we explain exactly what is a contribution SKU and how to generate your own using a real-life example. Read on to learn more. 

contribution sku

What is a Contribution SKU?

A Contribution SKU identifies specific product variants. For instance, the "iPhone 13 Pro Max" has different colors and storage options. Each unique combination gets its own contribution SKU. These allow us to see which product variation contributed to overall revenue.

Example: A specific model of a smartphone such as the "iPhone 13 Pro Max (256GB, Graphite)" represents a unique product variant within a company's inventory. It might have a sku code such as IP13PMX-001.

Let's look at some example contribution SKUs for the Iphone 13 Pro Max:

Contribution SKUS:

iPhone 13 Pro Max (128GB, Graphite) - IP13PMX-128G-GRA

iPhone 13 Pro Max (256GB, Graphite) - IP13PMX-256G-GRA

iPhone 13 Pro Max (256GB, Gold) - IP13PMX-256G-GOL

Importance of Contribution SKUs

Here are key reasons highlighting the significance of using Contribution SKU:

Precise Performance Analysis: Contribution SKUs aid in pinpointing top-performing products for better inventory, marketing, and pricing strategies.

Efficient Inventory Management: They enable resource allocation for popular variants while reducing investments in underperforming ones.

Tailored Marketing: Contribution SKUs help focus marketing efforts on boosting sales of profitable variants.

Profitability Assessment: They provide insights for data-driven pricing, bundling, and cost management decisions.

Product Development and Financial Reporting: Contribution SKUs guide product development and enhance financial reporting accuracy by segmenting data for specific product lines or variants.

what is contribution sku
Source: inflowinventory.com

How to Generate Contribution SKUs?

Here's a step-by-step guide on how to create contribution SKUs:

1. Carefully Identify Product Variants: 

Start by carefully and systematically identifying the unique product variants that warrant individual tracking. Consider various aspects, such as diverse models, varying sizes, an array of colors, or distinctive configurations, within your product range.

2. Select a Clear Naming Convention: 

Choose a naming convention that is both clear and consistently structured for your contribution SKUs. This convention should include a detailed breakdown that incorporates product names, specific attributes that set each variant apart, and unique identifiers.

3. Assign Distinct SKUs: 

Assign distinct and non-repetitive SKUs to each product variant based on your chosen naming convention. This step is important to prevent possibility of duplication for precise tracking.

4. Meticulously Document SKU Details: 

Maintain a comprehensive record or database for each SKU in your inventory. This documentation should capture essential data including attributes that define each variant, pricing structures, associated costs, and other relevant information essential for effective tracking.

5. Efficiently Implement in Inventory System: 

Seamlessly input your contribution SKUs and related data into your inventory management system. This serves the purpose of streamlining the tracking process while enhancing the overall efficiency of your inventory management.

6. Integrate with Sales and Reporting: 

Ensure seamless integration of contribution SKUs into sales and reporting processes. This integration enables comprehensive performance analysis, including sales figures, profitability, and essential metrics.

7. Commit to Regular Updates and Reviews: 

Make a steadfast commitment to regularly update your SKUs as your product lineup evolves. Conduct periodic reviews of SKU performance to inform adjustments in inventory and pricing strategies for agility and competitiveness.

 contribution sku explained
Source: bizfluent.com

Example of How to Generate Contribution SKU:

Here is a step-by-step guide applied to a company called "Gadget Haven," which specializes in selling various electronic gadgets. 

1. Identify Product Variants: 

Gadget Haven begins by identifying specific product variants within their electronic gadget inventory. These variants encompass various brands, models, sizes, colors, and configurations of smartphones, tablets, laptops, and smartwatches.

2. Choose a Naming Convention: 

The company maintains a uniform naming convention for contribution SKUs and incorporates elements like the brand, model, key attributes, and unique identifiers. For example, an iPhone 13 variant with 128GB storage in Graphite could be labeled as "GH-iPhone13-128GB-GR."

3. Assign Unique SKUs: 

Gadget Haven assigns distinct SKUs to each product variant based on the established naming convention, ensuring that no two variants share the same SKU. This prevents confusion and ensures precise tracking.

4. Document SKU Details: 

The company creates and maintains a comprehensive database containing essential SKU details. This includes product attributes (e.g., screen size, color), pricing structures, cost information, supplier data, and other relevant information for each SKU.

5. Implement in Inventory System: 

Gadget Haven integrates the newly created contribution SKUs into their inventory management system. This step enables efficient tracking, stock management, and real-time insights into SKU performance.

6. Integrate with Sales and Reporting: 

Contribution SKUs are seamlessly integrated into Gadget Haven's sales and reporting processes. This integration allows the company to analyze SKU performance including sales figures, profitability, and other crucial metrics.

7. Regularly Update and Review: 

Gadget Haven stays up-to-date with contribution SKU changes for new gadget models and updates. They also conduct regular performance reviews, allowing them to adjust inventory and pricing strategies accordingly.

By following this guide, Gadget Haven effectively generates and implements contribution SKUs to gain insights into the performance of their smartphone variants.

We hope that this article has left you with a better understanding of what contribution SKU is and how to generate and implement them effectively.

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