Stock Keeping Unit (SKU)

A Stock Keeping Unit (SKU) is a unique alphanumeric code assigned to every distinct product variant you sell. If you sell a t-shirt in 3 colors and 4 sizes, that is 12 SKUs. Each SKU represents a specific, trackable item in your inventory system. SKUs are foundational to inventory management, order fulfillment, and financial reporting.

SKU count has a direct and often underappreciated impact on manufacturing costs and complexity. Every additional SKU means the factory needs to track separate components, potentially change production setups, maintain separate inventory, and manage more complex quality control. Packaging must be labeled differently for each SKU. Your warehouse needs separate bins. Your website needs separate listings. The proliferation of SKUs (sometimes called "SKU creep") is one of the most common ways DTC founders accidentally destroy their margins.

When designing your product line, be strategic about SKU count. Start with fewer variants and expand based on actual customer demand data. Each SKU should carry its weight in sales volume. A rule of thumb: if a SKU represents less than 5% of total unit sales, consider discontinuing it. The inventory carrying costs, complexity overhead, and MOQ challenges of low-velocity SKUs often outweigh their revenue contribution.