Understanding SKU Profitability
SKU stands for Stock Keeping Unit, and is a unique identifier used to track inventory items in retail and ecommerce businesses. It is critical to understanding the profitability of each product line or item within a business. SKUs are used to identify specific products or product variations. For example, a company selling multiple sizes and colors of the same T-shirt would assign each combination of size and color a unique SKU. This makes it easier to track each product variation and identify which products are the most profitable. There are a few key metrics that businesses can use to measure SKU profitability. These include:
- Gross Profit Margin: This is the difference between the cost of goods sold and the revenues generated from the sale of that product. It is typically expressed as a percentage. The higher the gross profit margin, the more profitable the SKU.
- Sales Volume: This is the number of units sold of a particular SKU. The higher the sales volume, the more profitable the SKU.
- Inventory Turnover: This is the number of times, on average, that a SKU is sold in a given period of time. The higher the inventory turnover, the more profitable the SKU.
Understanding SKU profitability is key to any business that sells products. With the right data and analysis, businesses can identify which products are the most profitable and focus their efforts on those SKUs. This can help maximize profits and ensure long-term success. Resources:
- Gross Profit Margin: https://www.investopedia.com/terms/g/grossprofitmargin.asp
- Sales Volume: https://www.investopedia.com/terms/s/salesvolume.asp
- Inventory Turnover: https://www.investopedia.com/terms/i/inventoryturnover.asp