Inventory Management

What is Stock Keeping Unit (SKU) in eCommerce in 2025? Definition with Examples.

If your business deals with a wide range of products, it becomes immaterial whether it runs on a small or large scale. Inventory management and control become a critical part of your operations. SKUs in eCommerce is more critical when the same items are being sold online and in physical stores. Stock Keeping Units help you manage and understand the nature of the products sold and the cyclicity of their demand. Although there are 3 types of inventory in SKU: Raw material inventory, Work In Process Inventory, and Finished Goods Inventory.This article covers various aspects of SKUs in eCommerce such as what it is, what they are used for, and how to make the most out of them.What is a Stock Keeping Unit (SKU)?Stock Keeping Unit is a naming and tracking system used by merchants to identify and monitor their product inventory or stock. A Stock Keeping Unit is a one-of-a-kind code made up of alphabets and digits that identify a product's manufacturer, model, design, type, and dimensions.Companies create their own Stock Keeping Unit identifiers that are distinctive to the products and services they provide. Internal SKUs in eCommerce, from two firms offering the same item, such as t-shirts, are likely to be different.[contactus_gynoveda]Understanding Stock Keeping Units (SKUs)SKUs in eCommerce are used to help businesses account for all of their inventory precisely and rapidly. Model numbers are distinct from SKUs; however, model numbers can be integrated into SKUs if a corporation so desires.These codes ensure that your workers, consumers, vendors, and software discuss the same procedures. Item codes, component numbers, and the company's model number are used to describe SKUs. A Stock Keeping Unit isn't just for physical inventory; you could allocate them to other services you provide, such as bills and invoices, etc.Consider a situation where a retailer for a new, independent food and beverage store wants to come up with SKUs to start their inventory operations. They may give food items the letter F, with B denoting beverages and B2 denoting combos. The following set of alphanumeric codes will be a veg/non-veg and hot/cold beverages indicator, followed by an indicator for the size of the beverage. V may therefore be assigned to veg items, while NV could be assigned to non-veg food.The items might then be categorised further based on their shelf life. A veg patty expiring in 5 days would be FVP01062022, while a cold beverage in tall size would be BVCT020000.Importance of Stock Keeping Units (SKUs)SKUs are used for more than just identifying products and keeping track of inventory. This information will help you determine the profit margin of your business based on the data you've gathered. SKUs perform the following activities:Data InterpretationSKUs enable merchants to acquire data to analyse product importance or identify periodic and cyclical trends in their various client categories. This data allows them to store inventory that corresponds with trends in customer behaviour.Inventory ManagementA Stock Keeping Unit system's primary function is inventory management. Retailers can manage the storage and transport of inventory using one Stock Keeping Unit. They can use the data acquired from sales to define inventory levels and deadlines, which can function as a trigger for starting or stopping inventory reordering and exercising control.Assistance to CustomersEmployees may scan a Stock Keeping Unit to rapidly determine what is in stock when a client is looking for a different product version, resulting in increased sales performance and customer experience.How Do SKUs Work?SKUs in eCommerce is surprisingly simple to create. SKU numbers can be produced automatically by a system or a vendor.SKUs may be customised in an inventory management system and the system's technical team can ingest all the data created by SKUs and correctly onboard the relevant inventory onto the software.Users may search for SKU numbers in the system's backend to detect quantity levels, orders, price, and sales levels once the infrastructure is in place. Custom sales reports based on a specific Stock Keeping Unit number can also be published.What are SKUs Used For?SKUs in eCommerce can be used in a variety of ways by merchandisers. Simply put, they are accustomed to keeping track of inventory and sales. On the other hand, SKUs have the potential to accomplish a lot more when combined with a solid sales strategy.Inventory AnalysisSKUs in eCommerce are utilised to manage items at a single store or across numerous locations at the most fundamental level. You can scan an SKU to discover the entire amount of inventory available. When combined with an inventory management system, ordering cycle management and supplier connections, SKUs enable a more systematic or automated method for administering your items.Future Sales ForecastingYour WMS software can provide comprehensive reports and sales statistics using product SKUs concerning each item on the list. A systematic approach to utilising this data can enable businesses to estimate sales and demand for different products in upcoming periods. These systems can be highly effective for a small-scale enterprise. Retailers may use retail analysis to analyse how each item is performing by their Stock Keeping Unit.Customer AssistanceProperly estimating sales and demand will make future management easier. Knowing what to expect enables businesses to manage inventory levels. It's a narrow line that must be trodden carefully. Custom order suggestions via past order details also help you ensure that you have the correct quantity of goods on hand.Product RecommendationsEmployees can locate comparable items by looking at similar SKUs that are customised to meet different product range categories. For example, all fashion items on an eCommerce website may have the same starting SKU numbers, allowing the system to suggest a similar variety for customers looking to try something new.PricingFinally, SKUs in eCommerce help provide discounts, offer attractive products, and deconstruct packaged items into individual components. Businesses might use different SKUs for goods and packaging. A single beer, for example, may have a single SKU, but a case of the same beer would have its own unique SKU for a separate price and inventory unit. How to Design and Create SKU Numbers in 2025?Depending on the software, SKUs in eCommerce can be constructed in various ways. Creating SKUs may be simple and adaptable with the right inventory management system. The steps are listed below:Step 1: Begin with SKU NumbersEach Stock Keeping Unit’s first two or three digits/characters should reflect a primary identification. This might be a department, retail category, or even a vendor. A Stock Keeping Unit number, when scanned, specifies the top-level merchandising group and position of any product in your shop. If you own more than one business, you can also use SKU numbers to designate retail locations.You May Like: What is Merchandise Inventory?Step 2: Create Distinctive Designations Using Middle ValuesUse the middle digits of SKU numbers to attribute distinctive qualities to your product, such as dimension, shade, product category, or other required details. Arrange them in whatever way makes sense when arranging the items you offer.Step 3: Add a Sequential Number to the SKU at the EndEmploying sequential numbering for the last series of a Stock Keeping Unit number, such as 1, 2, and 3, simplifies the setup process and helps you distinguish old vs fresh goods amongst all your products. Trying to tie the last digit of a Stock Keeping Unit code to a supplier product ID might also be helpful in some cases. Methods that make logical sense for the products you sell should be employed.Step 4: Incorporate SKUs Into Your Inventory Management SystemYou can generate SKUs and maintain inventory manually in notebooks or an excel file, but utilising a systematic approach with inventory tracking is more straightforward and efficient. A system-based approach allows you to monitor as much or as little product data as you desire. However, most small businesses can start by entering the following simple data: Product DescriptionProduct nameProduct categoryBrief descriptionAny other relevant dataStep 5: Make Use of Barcode GenerationAfter creating a Stock Keeping Unit number, it needs to be integrated with your inventory management system. Here, you need to create barcodes that can be scanned into the system. These barcodes are placed on the items along with product labels. Barcodes can be generated using conventional barcode generation systems or through your inventory management system. Once barcodes are generated, you can print and stick them to your products.Learn more about the differences between barcodes and SKUs here.Examples of Properly Named SKUs in eCommerceExample 1 - ADMWALKWHI7213The SKU created can be understood as follows:AD: Name of the Manufacturer (Adidas)M: MaleWalk: Walking ShoeWHI: White Colour7: Shoe Number213: Item NumberExample 2 - BBHGTSHBLK02003The SKU created can be understood as follows:BBH: Baby HugG: GirlTSH: T-ShirtBLK: Black02: Age003L Item Number 5 Best Practices for Stock Keeping Unit or SKU formattingBe SimpleSince Stock Keeping Unit numbers are so simple to create for your company, it might be tempting to incorporate as much data as you can. Choose 2-3 features that you wish to convey in your SKU number to avoid lengthy SKUs. Keep individual codes short if you want more features.Begin With the Most Important FeaturesAfter determining important features, choose the most important one and add it to the beginning of the SKU number. Some stores like to begin with the most basic feature and work their way down. For example, begin with the identifier for the shoe brand before going on to type, size, and item number.Do Not Start SKU Numbers With a ZeroMost SKUs today are scanned into software stems and zeros at the start of a number are frequently perceived as non-existent. As a result, the SKU 003BBHGTSHBLK02 might also be interpreted as 3BBHGTSHBLK02. To reduce the confusion created by this issue, make sure that none of your Stock Keeping Unit numbers begin with a zero. Many firms work around this by starting the SKU number with a brand or supplier identity, as shown in the example above.Avoid Using Letters That Could be Confused for NumeralsIt may be tempting to use every letter of the alphabet because SKU numbers are alphanumeric. To avoid misunderstandings, try not to use characters that resemble digits. The letters O and I, for example, are frequently mistaken as zero and one.Do Not Repeat the Manufacturer's NumbersIt may look easier just to use the manufacturer's number or include it in the SKU when creating a numbering scheme. However, this eliminates the benefits of having a custom SKU formula built to meet your company's particular needs.Conclusion: How to Use SKUs to Grow Your Business and Improve Your Customer Service?Consumers increasingly expect and want a personalised, seamless experience. As a result, in terms of generating an engaging and intriguing shopping experience, eCommerce, as well as physical retail, have become highly critical. Merchandisers must keep their stores/eCommerce sites updated with the best-selling and most in-demand products to keep customers interested. Having a detailed view of and easy access to optimised SKUs is crucial for creating enticing assortments and quickly updating product suggestions and trends to keep up with the latest market trends.SKUs are essential for merchants to be competitive in today's dynamic, fast-paced retail industry. They simplify extracting relevant information from product identification data that is particularly unique to your company and its products. They enable you, your workers, and your clients to instantly verify the availability of products via an SKU query. Even small commercial enterprises should make use of SKUs. Create a decent SKU structure today and gain advantages across your business. This can be done with a 3PL fulfillment company like WareIQ.WareIQ offers a whole range of ecommerce fulfillment services including creating and managing SKUs for all your products and access to our custom WMS that will make managing your inventory a breeze.[signup]Stock Keeping Unit FAQs (Frequently Asked Questions)

May 30, 2022

What is Cost Per Unit? How to Calculate It & Top 5 Minimizing Strategies 2025

A business’s survival depends on the bottom line. Whether your business is into providing products or services, the key metric you have to monitor is the net profit. Net profit is defined as the difference between total revenue and total cost. Analyzing revenues and expenses gives a clear indication of whether a company is performing and working effectively. A key way of increasing your profit margins is to calculate cost per unit and find ways of reducing it as much as possible.By applying the cost per unit formula, businesses can identify inefficiencies in their production or service delivery processes. This insight allows for more accurate pricing strategies and better financial planning.In this guide, we will learn how to calculate the cost per unit and explore strategies to minimize it effectively.What is the Meaning of Cost Per Unit?Cost per unit is the sum of all the expenses that a company incurs to produce, store and sell one unit of a product or a service. It is also known as the cost of goods sold. There are various elements to calculate cost per unit. They are classified into two groups – fixed costs and variable costs. In order to calculate cost per unit, the first step is to ascertain operational profitability.Fixed Costs: Fixed costs are those that stay the same irrespective of the volume of production. Examples include capital equipment, rent, insurance, etc.Variable Costs: Variable costs vary based on the volume of output. Examples of this are direct materials and direct labour. Both can be reduced by employing the cheapest labour or outsourcing production to the most efficient manufacturer.[contactus_gynoveda]Importance of Cost Per UnitCalculating cost per unit is important because it is a key determinant of net profit per unit or earnings per share (EPS). EPS is a key performance indicator used by shareholders to assess performance. It also helps you to price your products appropriately. Knowing the cost of production will let you make a well-informed decision about the markup value.It helps you amplify the SKU (stock-keeping units), which are your highest profit generators, and assists in boosting customer loyalty and satisfaction. Also, if you know the different costing elements, you can work towards reducing the different components. If your cost of production is accurate, you can undertake SKU rationalisation and decide which products to keep and discontinue. These measures will help in space rationalisation and price optimisation with the key goal of improving cash flows, increasing return on invested capital, and boosting operating margins. A large organisation can lower unit costs through economies of scale and optimise the market offering price. You must calculate the cost per unit for all the various SKUs.How to Calculate Cost Per Unit (with Examples)?You must ascertain the total fixed cost and the total variable cost of production to calculate the cost per unit. Their sum must be divided by the total number of units produced to derive the unit cost of production.Cost Per Unit FormulaCost per unit = (Total Fixed Costs + Total Variable Costs) / Total Units ProducedWhere:Total Fixed Costs are the costs that do not change with production levels (e.g., rent, salaries).Total Variable Costs change with the level of production (e.g., raw materials, direct labor).Total Units Produced is the number of units manufactured during the period.The cost per unit is (Total Fixed Costs + Total variable Costs)/Total number of units produced.Cost Per Unit Formula Example 1: Let the Total Fixed Cost be Rs 1,00,000. Total Variable Cost is Rs 2,50,000. In a year, 50,000 units are produced. Cost Per Unit= (1,00,000+2,50,000)/50,000 which makes the cost of production Rs 7 per unit.Cost Per Unit Formula Example 2: Let Total Fixed Costs be Rs 1,00,000. The unit cost per unit is Rs 3. The total number of units produced in a year is 20,000. Cost Per Unit = (Total Fixed Cost/ Total Output) + Variable cost per unit = 1,00,000/ 20,000 + Rs 3= Rs 5+Rs 3 which makes the cost of production Rs 8 per unit.If there is a reduction in the volume of units produced, total variable costs will reduce but the fixed cost per unit increases as the denominator decreases. If there is an increased output, total variable costs will increase proportionately but the fixed cost per unit will come down.Difference Between Cost Per Unit and Price Per Unit[table id=22 /]Based on the difference between its price per unit and cost per unit, the company can determine how much discount it can offer on its SKUs as part of its marketing campaigns. At a bare minimum, a company should cover its breakeven costs. Explore more aspects to better understand the difference. Aspect Cost Per Unit Price Per Unit General Description Cost per unit refers to the sum of fixed and variable costs per unit. This is the total cost per unit. A manufacturing company must cover at least the total cost per unit. This total cost per unit refers to the breakeven level. The company must achieve at least a breakeven level of revenue so that it won’t incur losses. Price per unit refers to the market price at which the company wishes to sell its products and services. All of its SKUs are marked up over the cost per unit to make up its market price per unit. The difference between the market price and unit cost of a product or a service determines its profit per unit. This is the basis for determining the net profit of the company. Definition The expense incurred to produce or acquire one unit of a product or service. The amount charged to customers for one unit of a product or service. Purpose Used to measure production efficiency and control costs. Used to determine revenue and set selling price. Calculation Total Cost ÷ Number of Units Produced Total Sales Revenue ÷ Number of Units Sold Includes Materials, labor, overhead, and other production costs. Cost per unit plus profit margin and other markups. Impact on Business Helps identify ways to reduce costs and improve margins. Directly affects sales volume and profitability. Focus Internal cost management Market pricing and customer value perception5 Strategies to Minimise Cost Per Unit Improve Logistical Strategy It is important to build a logistics platform with a third-party logistics provider that has the required number of people, processes, and technology to report costs and service performance. Plan, execute, and optimise your transportation network with effective communication to all the involved parties. Use technology and analyse data to optimise freight. Look at procurement processes, mode selection, and supply chain network design. Don’t forget the KPIs, including reporting, monitoring, and logistics process improvement. Examining trends over time helps cut unnecessary costs and inefficiencies in the supply chain.Reduce Material Expenses Some ways to do this include the following:Substitute lower-cost materialsEliminate unnecessary product featuresReduce wasteNegotiate until you get the lowest possible price for the best quality productLeverage suppliers for faster delivery times and lower financing costsImplement a system of Just-in-Time inventory to reduce excessive stocking and material-carrying costsDecide when to trade off material carrying costs with higher discounts from the supplierMake use of bargaining opportunities to access materials available at prices lower than their cost of productionBarter finished goods for raw materialsOffer faster payments for better price discountsNegotiate long-term supply arrangements to ensure a steady supply chain and stable material costsReduce Overall Holding Costs You can reduce overall holding costs by doing the following:Optimise reorder levelsMake minimum order quantities work for youAvoid overstockingGet rid of your dead stockDecrease supplier lead timeUse inventory management softwareMinimise the Volume of Wasted Inventory, Reshipments, and Cancellations Use an efficient inventory management system to minimise overstocked inventory, leading to outdated, unsold inventory and incorrect customer demand forecasting, leading to overaccumulation of stock. Be aware that the product life cycle is becoming shorter and people’s shopping habits also constantly change. Optimise inventory levels to reduce wastage and also logistics costs. Set up inventory buffers to prevent problems across the supply chain and avoid overselling and underselling inventory across marketplace channels. Buffers are supplies or products kept in place to deal with demand forecasting or supply chain fluctuations that can arise in the future. Improving supply chain management helps reduce excessive inventory across various processes on the supply chain. Avoid excessive safety stocks to prevent stockouts unless you are in a cyclical or seasonal industry. Project future demand levels properly. Consolidate your supplier base to get the benefit of improved delivery time. Centralise the inventory function and use the ABC inventory management system to manage inventory properly. Negotiate required minimum order quantities with your supplier.To avoid reshipments and cancellations, review product weights and sizes and ensure you have the correct measurements of each product and its packing boxes. Accuracy is important to avoid shipping delays. Discrepancies between the actual sizes and weights and the numbers provided on the shipping container can cause unnecessary problems and delay delivery. Automate warehouse and order fulfillment operations to ensure minimal human error. Electronic documents for electronic signature verification help avoid human mistakes resulting in reshipments and cancellations. Eliminate Underperforming ProductsTo do this, you can then follow the points listed below:Assess the product’s profitability regarding its return on investment and return on time spentAssess customer feedback about the product’s acceptance in the market. If it is unfavourable, then it is better to eliminate itRe-evaluate your product offering to see whether you can recalibrate or revitalize it. If it is a divergent product, look to eliminate itDo a BCG or a GE-McKinsey Matrix to assess the product's performance and stabilitySuggested - Average revenue per unit arpuHow WareIQ Helps Reduce Fulfillment Costs Per UnitInventory OptimisationInventory gets stored in proximity to areas of high demand, ensuring same-day and next-day delivery. WareIQ provides a Warehouse Management System and expertise for efficient management of inventory and warehouse processes.Payment Based on Utilised Storage SpaceYou only pay for the warehousing facilities you use, so you incur lower inventory storing costs.Reduced Supply Chain ExpensesWareIQ provides a one-stop shop for all your logistics needs, from managing inventory to shipping orders, solving COD, NDR, or fraud issues, and analysing performance. This enables eCommerce businesses to focus on growing their business and outsource all inventory management and shipping requirements while ultimately reducing shipping costs.Bulk Carrier PricingWareIQ is integrated with all major selling platforms and on-demand courier companies. We find the fastest and most reliable option for each order to get it delivered to the customer; this also enables you to get the best pricing and fastest delivery on each order.Innovative Technological SolutionsWareIQ unifies network, technology, and expertise to offer end-to-end fulfillment services.[signup]Cost Per Unit FAQs

May 29, 2022

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