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The realm of e-commerce is very competitive, and there is always something new popping up that can help your business improve in its efficiency and processes. When it comes to boosting sales, irrespective of whether you are a dropshipping company or an online retailer, one important concept you must be familiar with is that of SKUs. 

SKU, abbreviated for Stock Keeping Unit, is a product code that retailers use to identify and search for products in their stock or order lists. It is typically a six to eight-digit, alphanumeric code that businesses may use to internally code and identify their products. This shouldn’t be confused with a UPC, or Universal Product Code, which is strictly a 12-digit numerical code that isn’t unique to retailers. While the former is used for inventory management, the latter is used for sales and POS services.

A SKU is an important aspect of inventory management for any type of business that manages stock. Given below are seven reasons why SKUs are essential components for all types of e-commerce businesses and online retailers:

1. They help in product identification

SKUs feature information regarding product manufacturer, type, size, color, and whatnot. It essentially helps managers identify products for the everyday needs of the business. Whether this is during office meetings or calls with the warehouse, referring to a product by its name isn’t simply feasible and hence SKUs are crucial to product identification. Whether you run an e-commerce store for perishable goods, fashion, jewelry, or tech, you are likely to benefit from using SKUs in your processes.

2. They help in managing warehouses

Without SKUs, managing a warehouse would be utter chaos and the warehouse manager wouldn’t be able to figure out the number, type, and availability of units. They help warehouse managers figure out and communicate when something is low in stock. Without SKUs, managers and suppliers would have to talk about products with names and descriptions, which simply isn’t feasible. Since SKUs deal with quantities of all the pertaining goods, they also help managers understand the quantities of theft and damaged goods which can indicate a thing or two about their warehousing practices.

3. It helps automate reporting

Running warehouses often requires companies to maintain reports on stock levels, sales, returns, and whatnot. SKUs help automate this reporting process when websites are linked to reporting software. Such software, aided by the uniqueness and power of SKUs, automates all reporting data to help managers understand which products are popular among customers and which products are faulty in terms of high returns or exchanges, or faults.

4. It supports multi-channel business management

Most e-commerce businesses function through multiple channels and the business could, for instance, by selling through their website, Instagram, Amazon, Facebook, or through other online and offline retailers. When multiple channels are involved, SKUs become even more crucial as you can be sure that your products aren’t confused with each other and that you can replace and reorder them timely.

5. They help account for product variations 

To make order fulfillment a breeze, SKUs are essential in terms of their power to help managers account for product variations. For instance, if managers do not assign SKUs to their online products and simply name them, they could make grave mistakes during order fulfillment. For instance, for a website selling shoes, the customer may mention they require a specific size and color in All-Star Converse but a warehouse manager packing orders may or not be well-versed in the different types and pack incorrect deliveries. 

6. It helps streamline sales and logistics

SKU helps automate and streamline the processes of sales and logistics substantially. Think of it this way – without the availability of a unique code to identify the products in your sales cycle and with your suppliers, how is a retail business even going to function? SKUs are at the heart of making sales and logistics successfully and heavily contribute towards their efficiency. Other business processes in addition to sales and logistics are not likely to be successful if you lack SKUs for your products.

7. They help improve business performance

Given the multitude of benefits that SKUs pose, it comes as no surprise that helps improve business performance. Their contribution to the sales and logistics department of the company’s functioning greatly improves efficiencies and subsequently has a positive effect on business performance. For instance, not using SKUs would be a grave mistake in inventory management which would not allow you to stock multiple variations of your product line and hence affect your sales.


Inventory management is crucial for all types of businesses alike, and it essentially begins with SKUs that carry the type, make, model, design, size, and price details of any given product. They assist customers and companies alike in finding the right product that they are looking for, and they are essentially irreplaceable in their work.

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