Every successful business needs a foolproof way to keep track of their inventory. Especially as your business grows, doing inventory management manually can become time-consuming, tedious, and frustrating, not to mention the potential for human error. It’s typically best to turn to an inventory management software. When you’re looking into a program, you’ll probably come across the terms SKU and UPC. But what’s the difference in SKU vs. UPC, and which one do you need?
What is an SKU?
SKU stands for Stock Keeping Unit. These identification numbers are unique to your operation and make it easy to find any individual product, including variants of certain products in different sizes or colors.
Many business owners wonder, “Are SKU numbers universal?” The short answer is no. You are able to create your own SKU system, but make sure your combinations of numbers and letters follow the same basic format for every product you label.
As a general rule, SKUs should be:
- Comprised of a unique combination of letters and numbers. SKUs can vary in length but are typically eight characters long.
- Free of letters and numbers that might be mistaken for another character, such as the letter “O” and the number “0” or the number “1” and the letter “I.”
- Part of a system that you can easily expand upon to work with your business as it grows.
- Simple, concise, clear, and short to make it easier to label and track each product.
DEAR recommends using the following types of SKUs:
- Unacceptable SKU: All numerals, starting with 0. This will cause problems importing and exporting data into CSV templates. E.g. 01 234 567.
- Acceptable SKU: Alphanumeric, including starting with 0. E.g. 003-Gloves, 103-Gloves.
- Acceptable SKU: All numerals, not starting with 0. E.g. 1 234 567.
What are SKUs Used For?
An SKU barcode is used for your internal inventory management. These codes are strictly for you and your employees to keep track of the products you have available. You won’t need to share these codes with any customers or other parties outside of your business.
SKUs can be helpful for optimizing your purchasing levels. By using an SKU system, you can quickly search for how many of a specific product you have in your store or warehouse, preventing you from over-purchasing an item or missing out on a restock. You can also analyze the number of a specific item you have versus how many you’re selling, allowing you to decide whether the item is worth carrying financially.
Who Uses SKUs?
Virtually every business that offers a physical product for sale can benefit from the use of SKU barcodes. If your business is incredibly small and only offers a handful of products, you may be able to proceed without an SKU system. However, as your operation and your inventory grow, implementing one will prove incredibly helpful for tracking variants of your products.
How Do You Get SKUs?
Each individual company can create its own system of SKUs either with a manual method or by using an SKU generator. If you choose to create your own, just keep in mind that the system will need to expand with time, so keep your format simple and easy to expand.
Would you rather go automatic? There are tons of SKU generators available through just a simple Google search. If you’re a small business with a limited budget, you can even opt for a free service.
DEAR allows you to automatically generate the SKUs. Auto-generated SKUs will follow the pattern specified in the Settings. SKU auto-generation can be enabled/disabled at any time without affecting existing SKUs. If you choose to auto-generate SKUs, you will need to enter the pattern that DEAR will use for your product and/or service SKUs.
How Do You Use SKUs to Track Performance?
If you’re using an SKU generator, you can automatically track your numbers to analyze how your products are performing. However, if you choose to go with a manual method and need to track your items’ performance, you’ll need to calculate your SKU ratio and your sales ratio.
To calculate your SKU ratio, first list out all of your SKUs in a spreadsheet. Take note of each price for each SKU and subtract this number from how much the item costs you to determine your gross profit. Create gross profit ranges and determine how many SKUs fit into each category. You can then divide your number of SKUs in a certain range by your total number of SKUs to discover your SKU ratio for that range.
You’ll also need to determine your sales ratio. Use the same gross profit ranges you came up with in the first exercise, then note the number of units you’ve sold in a given period. Divide the number of sold units in each range by the total number of units sold to get your sales ratio for that range.
Compare your SKU ratio and sales ratio for each range. The best performers will have a high sales ratio compared to their SKU ratio, while lower performers will have a higher SKU ratio.
What is a UPC?
UPC stands for Universal Product Code. A UPC is probably what you’re picturing when you think of the standard barcode. Your unique UPC will start with your company’s identification number and will then specify the exact product in question.
The biggest difference in SKU vs. UPC is that UPCs are given out by the non-profit organization GS1, while SKUs are created internally by each company that utilizes them. The “universal” part of UPC implies that this number will be the same no matter where you purchase a particular product from.
As a general rule, UPCs should be:
- Consistent across all retailers where a specific brand and its products are sold.
- Made up of only numbers, no letters.
- 12 digits in length.
- Accompanied by a series of digitally readable bars, also called a barcode.
What are UPCs Used For?
First, UPCs are the barcodes that are mainly used for scanning products at POS systems. While the barcode is simple to scan, the numbers make it easy for a cashier to manually enter the product if the barcode can’t be scanned for some reason.
Similarly to SKUs, UPCs can also be used for inventory tracking. They make it simple to track product volume, reorder stock, print receipts, and so on. In addition to product UPCs, coupons can also have UPCs. Coupon UPCs ensure that the coupon is being matched with the right product and that the coupon is still valid.
Who Uses UPCs?
The vast majority of businesses across the globe use UPCs. GS1 is the global standard for the barcode and is used throughout the United States, Canada, Australia, New Zealand, Europe, and more.
Some international businesses opt to use EANs, or International Article Numbers, instead. These are 13 digits long as opposed to the 12-digit UPC and are typically just a standard UPC with the number 0 in front. EANs are virtually the same as UPCs and can be read by most barcode scanners.
How Do You Get UPCs?
Your business can obtain your UPCs in two different ways. First, you can purchase your UPCs directly from GS1 US. By purchasing a yearly membership, you’ll receive a unique identity for your business, also called your Company Prefix. Your price will vary depending on how many barcodes you’ll need. As of writing this article, prices from GS1 are listed as follows:
- 1-10 products: Initial fee of $250 with an annual renewal fee of $50
- 1-100: Initial fee of $750 with an annual renewal fee of $150
- 1-1,000: Initial fee of $2,500 with an annual renewal fee of $500
- 1-10,000: Initial fee of $6,500 with an annual renewal fee of $1,300
- 1-100,000: Initial fee of $10,500 with an annual renewal fee of $2,100
Purchasing a GS1 membership is incredibly advantageous, but it isn’t doable for some small business. You can also get your UPCs through barcode selling services that let you use another company’s identity code. Companies with very few products may be able to go this route, but if you’re able, we suggest registering with GS1.
Once you have your unique company code, you can then add on your own numbers to reach the 12-digit standard. These numbers can come from your SKU code or can follow a different system entirely, depending on your preferences.
DEAR POS can handle advanced barcodes with embedded data such as Weight-based, price-based, GS1, EAN/UPC which are ideal for stores that sell products based on weight or price, e.g. butcher shops, delicatessens, and fruit stands.
How Do You Use UPCs to Track Performance?
UPCs make it easy to track your products’ performance since these barcodes and numbers are what your cashiers will use to enter each item sold. These codes will work with your existing POS and inventory management system, allowing you to quickly run reports and track how your items are performing. If you need to reorder a product or are considering running a sale to get rid of excess merchandise, this method is the easiest way to figure out what’s necessary for your business.
Take Control of Your Inventory
Both SKUs and UPCs allow you to control your inventory more quickly and accurately. By using one simple system, you’ll be able to pull your numbers in an instant. While not every business utilizes SKUs, they can be a helpful tool, especially when combined with UPCs. Either way, these codes give you greater access to sell your products on the global market and continue to grow your business for years to come.
If you’re considering integrating SKUs and UPCs into your business, consider working with DEAR Systems. We offer a variety of Cloud ERP software options to suit all the needs of your expanding company. Our customers love our range of POS, inventory management, sales, purchasing, and other services that allow you to choose exactly the resources your company needs. Contact us today to learn more!