According to the Census Bureau, the U.S. developed the North American Industry Classification System (NAICS) in collaboration with Mexico and Canada. The purpose of the system was to make it easier to analyze and compare economies by creating common industry definitions. Over the years, state, local, and federal agencies have adopted the system for a range of purposes.
Breaking Down the NAICS Code Structure
The official NAICS code structure consists of a two to six digit hierarchy of classifications with five levels of details. The 2-digit code indicates the economic sector, the three digit code includes the economic subsector, the four digit code includes the industry group, and the five digit code adds the industry. Since the classification systems applies to the U.S., Canada, and Mexico, the sixth digit allows for country-specific detail.
Understanding NAICS Codes in Government Contracting
The full, 6-digit NAICS code plays a key role in government contracting. NAICS code applications span from registering to do business with the federal government, to determining your business size and conducting market research. With such a wide breadth of uses, it can be difficult to get far without understanding and knowing your NAICS codes.
- Government Market Research
- Business Size-Determination
- System for Award Management Registration
- GSA Schedule Contracts
Government Market Research
The federal government utilizes NAICS codes to classify government contract opportunities and awards. Whether your company is just getting started in the government market, is evaluating the addition of new offerings, or is looking to reassess the market, NAICS codes provide a great starting point for government market research.
Researching NAICS Codes can help you determine:
- How much the government spends on your category of products or services
- Which agencies are spending the most on your category of products or services
- Which companies are currently selling your category of products or services to the government
- If there are cyclical spending trends associated with your category of products or services
Business Size Determination
The U.S. Small Business Administration (SBA) uses NAICS codes as a basis for determining business size-status. This is important because your business size-status impacts if you qualify for small business set-asides, small business subcontracting, and various small business government contracting programs.
SBA’s small business size threshold is determined by your average annual receipts or average number of employees, both of which vary depending on your NAICS code. For example, a software developer, cannot exceed $41.5 million in average annual receipts to be considered a small business. Computer programmers cannot exceed $30 million under NAICS code 541511 and management consulting firms under NAICS code 541611 cannot exceed $16.5 million. However, if you manufacture scales and balances under NAICS code 333997 or commercial lighting fixtures under 335122, you cannot exceed 500 average employees. To see the definition of annual receipts and average employees, view the common terms section on SBA’s website here.
In order to do business with the federal government, you’re required to register on the System for Award Management (SAM.gov). Part of the registration process involves entering the NAICS code or codes associated with your products or services. You can list multiple NAICS codes on your SAM registration, however you will have to designate a primary NAICS. While companies should register at https://www.sam.gov, you can find more information on how to register here.
GSA Multiple Award Schedule (MAS) Contract
The GSA MAS Contract (GSA Schedule) maps all product and services categories, known as Special Item Numbers or SINs, to one or more NAICS codes. When GSA reorganized and consolidated the GSA Schedules program in October of 2019, they restructured all SINs to more closely mirror NAICS codes. For example, the SIN number for IT Software matches the corresponding NAICS code, 511210. However, the SIN for IT Professional Services is 54151S to distinguish the SIN from others that map to the same corresponding NAICS codes, 541511, 541512, 541513, and 541519. You can learn more about the GSA Schedule here.
There are over a thousand NAICS codes, however less than 230 NAICS codes can be offered through the GSA Contract.
Identifying Your NAICS Codes
NAICS Code Lookup
The Census Bureau website is the official government source for information on NAICS codes. Visit the Census Bureau website at https://www.census.gov/naics/ to view an FAQ, download the full list of NAICS codes, or search a NAICS code.
You can use the search feature on the website to lookup keywords related to your products and services to find the most applicable NAICS code(s). One note, the North American Industry Classification System is reviewed every five years to evaluate the need for updates. 2017 is the latest release, and the 2022 update is currently in progress.
As you explore the available NAICS codes, keep in mind, the classification system was created to collect and analyze statistical data on the economy. Since the system is not tailored to government procurement, it may take some time to identify the most appropriate NAICS codes for your business. For instance, you may be surprised to find no results for the keyword “cybersecurity”. IT services companies, including health IT and cybersecurity providers, are typically associated with the NAICS codes under Industry 54151, Computer Systems Design and Related Services:
- 541511 Custom Computer Programming Services
- 541512 Computer Systems Design Services
- 541513 Computer Facilities Management Services
- 541519 Other Computer Related Services