What are SKU Best Practices? [2023 Update]

1.5 Minutes

In this article, we will cover common SKU best practices and the significance of implementing these in your business operations. 

sku best practices

Understanding SKU Best Practices

SKU best practices are guidelines for efficiently managing product identifiers that focus on naming, categorization, and inventory control to enhance operational efficiency and profitability in retail and supply chain operations.

what are the sku best practices

Importance of Implementing SKU Best Practices

Here are some of the key reasons why following SKU best practices is important for your business: 


Consistent and well-implemented SKU practices save time and reduce operational costs by effectively streamlining inventory management ensuring that products are readily available according to customer demands.

Accurate Tracking: 

Thoughtfully structured SKUs not only prevent stockouts but also significantly enhance customer satisfaction and contribute to revenue stability through a substantial reduction in fulfillment errors.

Inventory Optimization: 

Thoughtful and well-planned SKU strategies effectively minimize carrying costs, allowing businesses to allocate their resources more efficiently and adapt to customer demand fluctuations.

Data-Driven Decisions: 

Standardized SKUs offer a dependable source of information vital for optimizing inventory planning. This results in a more efficient operation and a substantial reduction in the potential for overstocking or stockouts.


Best practices in SKU management play a crucial role in facilitating seamless growth without encountering operational complications as businesses expand their product offerings and market presence.

Cost Reduction: 

Regularly scheduled SKU audits, along with the systematic elimination of low-performing SKUs free up valuable resources and essential storage space which results in a substantial reduction in operational costs.

Competitive Edge: 

Efficient SKU management sharpens a business's ability to respond to market shifts and changing customer preferences, giving it a competitive edge by staying aligned with evolving trends.

sku best practices example

10 SKU Best Practices 

While there are many best practices, here are some of our SKU best practices to optimize operations and stay competitive: 

1. Consistent Naming Conventions: 

Maintain uniform SKU naming conventions. If you operate a toy store, use a consistent format like "TOY-LEGO-CREATOR-12345" for LEGO Creator sets, making it easy to identify products.

2. Meaningful Product Codes: 

Ensure SKUs convey essential product information. In a gardening supply store, a meaningful SKU might be "GARDEN-TOOL-SPADE-WD-HDL" for a wooden-handled spade.

3. Hierarchy and Categories: 

Organize SKUs hierarchically. For instance, if you manage a grocery store, create categories like "DAIRY" and then subcategories like "CHEESE" to categorize products effectively. This makes it clear where each SKU belongs.

4. Avoid Overcomplication: 

Strike a balance between detail and simplicity. If you sell cosmetics, avoid overly complex SKUs like "COSMETIC-FACE-FNDTN-LIQ-SPF30-LT-IVORY-30ML" by using concise yet informative codes.

5. Unique Identifiers: 

Ensure each SKU is unique. Even for identical products, use unique identifiers. For handmade jewelry, distinguish identical necklaces with unique serial numbers like "NECKLACE-PEARL-001" and "NECKLACE-PEARL-002."

6. Regular Auditing: 

Periodically review SKUs to identify and rectify issues. In an art supply store, you might find duplicates like "PAINT-BLUE-ACRYLIC-2OZ" and "BLUE-ACRYLIC-PAINT-2OZ" that should be consolidated.

7. Inventory Velocity Analysis: 

Closely examine how each SKU performs in your inventory. For example, if you manage an electronics store distinguish between fast-selling products like "SMARTPHONE-XYZ" and slower-moving ones. This helps you prioritize and manage high-demand products effectively. 

8. Forecasting and Demand Planning: 

Use historical data and forecasting for SKU alignment. If you operate a bakery, use past sales data and forecasts to ensure you have the right quantity of bread (e.g., "BREAD-LOAF-WHOLEWHEAT") on hand to meet customer demand.

9. Automated Inventory Management: 

Implement software for automated SKU tracking. For an e-commerce fashion retailer, automate reorder points for SKUs like "SHOE-RUNNING-WMNS-9" to trigger restocking alerts when inventory levels are low.

10. Stock Rotation: 

Apply stock rotation principles. In a grocery store, apply the first-in, first-out (FIFO) approach to perishable goods like "DAIRY-YOGURT-PLAIN-32OZ" to ensure older items are sold before newer ones.

We hope that we have now left you with a better understanding of some of the common SKU best practices and why they are important foryour business.

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