SKU Count

What is SKU Count?

SKU count refers to the total number of unique SKUs a business manages within its inventory system. If you currently have 100 products in stock, and each product has 3 different variations (e.g., colors, sizes, or other attributes), then your SKU count would be 300.

In business, the term “SKU” stands for “stock-keeping unit.” It is a unique identifier that uses alphanumeric characters to distinguish between inventory items. Each SKU is specific to an item, including details like size, color, and style, which distinguishes it from other items and from universal product codes (UPCs), which are identical for the same product across different stores.

By assigning specific SKUs to each product variant, businesses can easily track product quantities, monitor stock levels, and analyze sales patterns within their inventory management software. And, by counting the total number of SKUs within their inventory, businesses can get a better understanding of the complexity and diversity of their product offerings.

Synonyms

• Stock-keeping unit count
• Inventory count
• Product count

Importance of SKU Count

On the surface, it seems like SKU count is a fancy way of answering, “How many products do we have in stock at the moment?” That’s true, but it forms the basis of much more sophisticated decisions and analyses.

SKU count is a way of measuring the variety and complexity of inventory a company handles, with each unique product variant (indicated by a SKU number) contributing to the overall count. So, it plays a critical role in catalog management and inventory control.

Inventory Management

Knowing how many unique product identifiers your business manages helps you track and manage your inventory more effectively. With a high SKU count, businesses can easily identify their top-selling products and monitor their stock levels to avoid potential overstocking or understocking. This becomes especially important the more SKUs a business has.

For example, a large electronics retailer like Best Buy manages an extensive SKU count with multiple smartphone models and variations — from the latest iPhone to older Android models. Knowing the exact count allows them to monitor which models are selling quickly and which are languishing on shelves.

If certain older models aren’t selling well, the retailer can use this data to offer discounts or bundle deals to clear out slow-moving inventory. Or, if a model becomes obsolete due to the release of newer technology, they might even decide to discontinue it altogether.

The point is, knowing the count is the first step in this analysis.

Sales and Profit Analysis

Analyzing SKU counts gives businesses critical insights into sales trends and profitability on a per-product basis. By tracking the sales performance of each product variation, they can discern patterns like:

• Which items sell best during certain times of the year
• Items customers frequently purchase together
• Products that are declining in popularity

Consider a popular fashion retailer like Zara, which offers a wide variety of clothing items, each with its own SKU. The retailer may see some jacket styles selling well in the fall across various regions. From there, design, product, and procurement teams know to plan for more of these six or so months in advance. And marketing knows to target specific regions once they launch.

Product Assortment Optimization

Businesses use SKU count to strategically optimize their product catalog and cater to diverse customer preferences by closely monitoring which items sell best. Then, they tailor their inventory levels accordingly.

This approach requires businesses to segment their customers. This enables them to analyze SKU data for trends and demand across different members of their customer base and stock products that are more likely to appeal to their target buyers.

By adjusting their product lines based on SKU performance, they can increase customer satisfaction, reduce inventory costs, and enhance sales effectiveness.

Challenges of Managing High SKU Count

Like we mentioned above, the issues with product catalog and inventory management are considerably greater for businesses with an extensive SKU count. Here’s why.

Higher Inventory Carrying Costs

Carrying costs generally fall somewhere between 20% and 30% of your inventory’s total value. However, increasing the number of products you sell beyond your current stock capacity creates additional expenses.

• Larger facilities to accommodate the increased inventory levels
• Insurance, taxes, and utilities for additional storage space
• Higher labor costs to manage more complex inventory levels
• Greater potential losses from perishable or damaged products

If multiple products aren’t moving off the shelves, they tie up valuable warehouse space (and money) that could’ve gone toward other products with higher demand. If you poorly manage your SKU count, you won’t know which products are costing you money and how to optimize your catalog.

Demand Forecasting and Planning Difficulties

As the number of SKUs in your inventory grows, so does the complexity and volatility of demand. So, businesses with high SKU counts have a more extensive range of products to forecast and plan for, making demand forecasting much more multifaceted. 

For one, it’s logistically challenging. Overstocking an unpopular product is just as problematic as understocking a popular one. Selling out of a high-demand product is great for short-term gains. But, failing to restock it quickly means you lose out on sales and risk losing customers.

The other issue is inefficiencies when it comes to reordering and managing inventory levels. The more products you have, the longer it takes to track demand for each one, determine when you have to order new stock, and ensure you have enough space to accommodate it.

Data Management Complexity

As the number of SKUs increases, so does the volume of data (exponentially, might we add). Each SKU contains unique information about product characteristics, inventory levels, sales history, and customer demand. Efficient data management is impossible without a strong system for aggregating and analyzing product and sales information.

Businesses also have to consider the higher likelihood of human error (and the impact of that error). Even a small error, like inputting the wrong SKU code, can lead to significant inventory issues down the line when you’re moving hundreds of different products.

Strategies for Effective SKU Count Management

Managing the SKU count effectively helps the ecom brands and retailers optimize shelf space and financial resources while aligning their stock with current consumer demand.

Let’s dive into some strategies and best practices businesses can implement to manage theirs:

Regular SKU Reviews and Clean-Ups

Businesses have to regularly review their SKU count and make informed decisions about which products to keep, adjust or let go of.

This practice helps businesses:

• Clean your SKU data to ensure accuracy
• Identify which SKUs are no longer profitable (or never were)
• Remove excess inventory that’s taking up space
• Limit the number of dead stock products
• Better align with current consumer demand and inventory levels

Removing unprofitable SKUs reduces carrying costs, frees up warehouse space, and makes for a more streamlined inventory management process.

Demand Forecasting

Even with software demand forecasting involves several steps, including collecting and analyzing past sales data, considering industry trends, and applying statistical models to predict future sales. For instance, time series models and machine learning algorithms can capture complex patterns in sales data, which are crucial for accurately predicting future demand.

For businesses that accomplish this, however, predictive analytics are a game-changer for revenue. They help companies make informed decisions about which products to stock and when, which reduces inventory costs and increasing customer satisfaction.

ABC Analysis

ABC analysis is an inventory management method where a business ranks inventory by sales volume and profitability to help businesses focus on the most valuable SKUs. It’s grounded in the Pareto principle (a.k.a. the 80/20 rule), which suggests that 80% of a company’s revenues come from 20% of its products.

In ABC analysis, SKUs are divided into three categories: A, B, and C items.

• A items are the most valuable. They comprise about 20% of the inventory but generate around 80% of the revenue. They require the tightest inventory control and regular monitoring to avoid stockouts.
• B items represent a middle tier, accounting for a larger portion of the inventory (around 30%) and contributing about 15% of the revenue. These items are important but demand less rigorous oversight than A items.
• C items make up the bulk of the inventory (around 50%) but only generate about 5% of the revenue. These are the least critical items and can be managed with more lenient controls​.

The classification system helps manufacturers, ecom sellers, and retailers optimize their inventory by focusing resources and efforts on managing their core A items closely, while B and C items receive a level of attention proportional to their lesser impact on the bottom line.

Vendor Management

Collaborating with vendors can improve inventory management and reduce SKU count via strategies like vendor-managed inventory (VMI). In a VMI arrangement, the supplier assumes responsibility for managing and replenishing inventory based on agreed-upon levels, which helps maintain just the necessary stock levels and reduce excess inventory.

This setup cuts carrying costs and reduces stockouts, ensuring product availability. Plus, suppliers gain better insight into sales and stock for precise forecasting and replenishment. Meanwhile, they can apply their expertise to optimize the SKU range, eliminating redundant or underperforming products.

CPQ Software

CPQ (configure, price, quote) software automates product configuration, pricing, and quote generation. This reduces the time and effort required from sales teams to manage individual SKU details, select products, and configure prices manually. And, for companies with a high SKU count, CPQ tools aid in managing complex pricing structures and discounting policies systematically.

It also integrates with your CRM, ERP, and other tools like PIM and DAM systems, consolidating all product data into one view. This makes it easier to manage your entire SKU count, from creation and modification to retirements.

To maximize the ROI of your CPQ strategy, though, you have to think beyond how it helps with complex SKU selection. For instance, Yotpo implemented DealHub CPQ to enhance the overall selling and customer experiences. But additional benefits came from dynamic pricing, which gave them the agility they needed to adjust prices based on fluctuating demand and competition.

People Also Ask