Do I have too many SKUs, or too few?

March 6, 2014

When helping an e-fulfilment client put their house in order, some of the most frequent problems are with SKUs. All too often, the merchant has only a handful of inflexible SKUs, or an unmanageable array of to-small units. A good rule of thumb is that you should have fewer SKUs than the number of orders you despatch each month, but this can vary greatly by industry and product type.

So, how many SKUs should you have?

First, take a look at the market you sell in. How does it respond when you stock more or fewer items? What happens when you reduce the number? You may see a cooling of interest due to lack of choice, but you are just as likely to see an upswing, as too many choices can confuse some consumers.

And if you increase your SKU count?

Some industries demand exactly what they want exactly the way they want it. Especially of you are supplying tradesman or industry professionals rather than standard consumers, you may need to stock a thousand separate widgets. Too many SKUs will increase your overhead though, as you will need to keep a lot of units in stock. It will also tie a larger percentage of your value up in merchandise, which goes against the current ‘lean’ practices.

Of course, you could just cheat.

Have a look at your strongest competition’s website. There is no better source of intelligence on the enemy’s position in the market. If they sell to the same market, and are doing well for themselves, model your system after theirs. If they only have a handful of SKUs that move like hotcakes, you may do well to make sure you have analogous products. If they (and you) sell to consumers who demand a lot of choice then you won’t do yourself any favours by limiting your stock.

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