NAICS Codes 101: What They Are, Why They Matter, and Which One Actually Counts

If you're new to Government contracting, you're going to hear people talk about NAICS codes. A lot.

What's your NAICS? What's your primary NAICS? What's the NAICS on the solicitation? Are you small under that NAICS?

Before we get into any of that, let's address perhaps the most important question: How in the world do you pronounce NAICS?

NAICS stands for North American Industry Classification System, and it's generally pronounced “nakes” — it rhymes with cakes. I love cakes, so this works for me. If you're Southern, however, you're also perfectly welcome to give it a little extra syllable and call it “NAY-uks.” 😂

Years ago, I worked with someone who finally gave up on the whole pronunciation issue and started calling them “niceness codes.” To this day, I still hear “niceness” in my head every time I see NAICS.

Now that we've handled the important stuff, let's talk about what they actually are.

What Is a NAICS Code?

At its most basic level, a NAICS code is a way of classifying a business based on the type of economic activity it performs. The system is used by federal statistical agencies to classify businesses so economic data can be collected, analyzed, and compared consistently.

For Government contractors, though, NAICS codes take on another very important role: they connect the type of work being procured to the SBA size standard used to determine whether a company qualifies as “small” for that procurement.

That's where NAICS becomes particularly important to small Government contractors.

How Do NAICS Codes Work?

NAICS is hierarchical, which is a fancy way of saying the code starts broad and gets increasingly specific as you add digits. The first two digits identify the broad economic sector, the third identifies the subsector, the fourth identifies the industry group, the fifth identifies the NAICS industry, and the sixth identifies the specific U.S. industry.

Here's an example:

44-45 — Retail Trade 441 — Motor Vehicle and Parts Dealers 4412 — Other Motor Vehicle Dealers 44122 — Motorcycle, Boat, and Other Motor Vehicle Dealers 441222 — Boat Dealers

So if someone tells you their NAICS is 441222, those six digits aren't random. They're essentially an address within the classification system, taking you from the broad world of retail trade all the way down to boat dealers.

For a GovCon example closer to the professional-services world, you'll frequently see codes beginning with 54, which represents the Professional, Scientific, and Technical Services sector.

The important thing for a beginner isn't memorizing this hierarchy. Please don't. There are much better uses for that space in your brain. 😂 What you do need to understand is that similar-looking six-digit codes can represent different kinds of work, and those distinctions can matter.

Your Company Can Have More Than One NAICS Code

This is where I see some confusion when people are new to Government contracting. A company doesn't necessarily have one NAICS code that defines everything it is allowed to do.

When registering in SAM.gov, businesses identify the NAICS codes that describe the products and services they provide. One is identified as the company's primary NAICS, but a company can identify additional NAICS codes for other work it legitimately performs.

Your primary NAICS should represent your principal business activity, but that does not mean every Government opportunity you pursue has to use your primary NAICS. That's an important distinction.

Your NAICS codes can also change as your business changes. Maybe you add a new service line, eliminate one, or your company's primary business activity shifts over time. Your SAM registration should accurately reflect what your company actually does.

The goal isn't to collect NAICS codes like Pokémon, though. 😂 If you've added every code that could conceivably relate to something you might someday be able to do, you've probably missed the point.

Your Company's NAICS and the Solicitation's NAICS Are Two Different Things

This is probably the most important thing in this entire article.

When the Government issues a procurement, the Contracting Officer assigns a NAICS code based on the principal purpose of the product or service being acquired. That NAICS has an associated SBA size standard, generally expressed as either average annual receipts or number of employees, depending on the industry.

So when someone asks me, “Are we a small business?” my Contracts-person answer is usually, “Under which NAICS?”

A company may qualify as small under one size standard and not another. That's why your company's primary NAICS does not, by itself, determine whether you're eligible to compete as a small business for a particular procurement. The NAICS assigned to that specific acquisition matters.

For contractors pursuing set-aside work, this is something you want to understand early rather than after you've spent days putting together a proposal.

So Who Picks the NAICS on a Solicitation?

The Government does. More specifically, the Contracting Officer is responsible for designating the NAICS code and corresponding size standard for the acquisition based on its principal purpose.

Sometimes you'll look at a solicitation and immediately understand why that particular NAICS was selected. Other times you'll look at one and think, “How on earth did we get here?”

If you believe the assigned NAICS doesn't accurately represent the principal purpose of the procurement, you don't necessarily have to shrug and live with it.

What If You Think the Government Chose the Wrong NAICS?

There is an appeal process through SBA's Office of Hearings and Appeals (OHA), but this is one of those places where knowing the rule before you need it matters.

NAICS appeals have a very short filing window—generally 10 calendar days after issuance of the solicitation, or after an amendment affecting the NAICS designation. That means this isn't something to stick on your “I'll research that later” list.

For a brand-new Contracts person, I don't expect you to become an OHA expert. I do want you to recognize when something doesn't make sense, know that there may be a mechanism to challenge it, and ask for help quickly.

Why Does Any of This Matter So Much to Small Businesses?

Because NAICS codes and SBA size standards are tied together. Each NAICS has an associated size standard establishing the maximum size a company can be and still qualify as small under that standard.

Depending on the NAICS, the size standard may be based on average annual receipts or number of employees. That can directly affect eligibility for small-business set-asides and other opportunities where size status matters.

It also explains why changes to SBA's size standards can have such a significant impact on the competitive landscape. Your company doesn't have to change at all for a change in the applicable size standard to affect who qualifies as small and who you're competing against.

If you're researching a NAICS and want to know the applicable size standard, this is one resource I recommend bookmarking:

SBA Table of Size Standards: SBA Table of Size Standards

Don't try to memorize the thresholds. Know where to find the current answer.

And Meet NAICS's Little Brother: PSC

Once you start looking at solicitations, awards, SAM.gov, USAspending, and other federal procurement information, you're also going to encounter PSC, or Product and Service Codes.

I think of PSC as NAICS's little brother. They're related, you'll often see them hanging around together, but they aren't doing the same job.

The simplest way I can explain the difference to someone new to GovCon is:

NAICS = What industry does this work fall under?

PSC = What product or service is the Government buying?

PSCs are four-character codes used by the Federal Government to describe the products, services, and research and development it purchases. Like NAICS, they're useful for understanding and categorizing federal spending, but PSC and NAICS are not interchangeable.

For now, I just want you to recognize the acronym and understand the difference. We'll save the deep dive into PSCs for another day.

Where Should You Start If You're New to This?

Start with your own company. Know your primary NAICS, know the other NAICS codes your company uses, understand what type of work each represents, and know where they're maintained in your SAM registration.

Then get in the habit of looking at the NAICS assigned to every solicitation you're reviewing. Look up the associated size standard rather than assuming you know it. If something doesn't make sense, ask why.

That's a habit I would encourage anyone new to Government contracting to develop early: don't just learn where the information is. Learn what it means, why it's there, and when it should make you stop and ask a question.

The Bigger Lesson

NAICS is a perfect example of why Government contracting can feel overwhelming when you're new. Someone asks, “What's your NAICS?” and it sounds like a simple question. Five minutes later, you're talking about company registrations, six-digit classifications, solicitation designations, size standards, employee counts, average annual receipts, set-asides, Contracting Officer decisions, and SBA appeals.

Welcome to GovCon. 😂

You don't have to learn everything at once. Learn the foundation, understand what you're looking at, know where to find the answer, and ask questions when something doesn't make sense.

That's pretty much how I learned.

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References & Resources

References & Resources

U.S. Census Bureau. “North American Industry Classification System (NAICS).”Official NAICS information, classification structure, reference files, and current NAICS search tools.U.S. Census Bureau — North American Industry Classification System (NAICS)

U.S. Census Bureau. “Understanding NAICS.”Explanation of the NAICS hierarchical structure, including the sector, subsector, industry group, NAICS industry, and national industry levels used in the example above. U.S. Census Bureau — Understanding NAICS

U.S. Small Business Administration. “Table of Size Standards.”SBA's size standards identify the maximum size a business may be and still qualify as small for federal contracting programs. Size standards are generally based on average annual receipts or number of employees. SBA — Table of Size Standards

U.S. Small Business Administration, Office of Hearings and Appeals. “NAICS Appeals.”Official guidance regarding appeals of NAICS designations. SBA states that a NAICS appeal generally must be filed within 10 calendar days of issuance of the solicitation, or within 10 calendar days of an amendment when the appeal concerns a NAICS change made by that amendment. SBA Office of Hearings and Appeals — NAICS Appeals