Understanding NAICS Codes: Why They Matter for Government Contractors

If you are pursuing government contracts, NAICS codes are one of the first things you need to understand. They determine which contracts you can bid on, whether you qualify as a small business for a given opportunity, and how the government categorizes your company. Getting your NAICS codes right is foundational to everything else in government contracting.

What Are NAICS Codes?

NAICS stands for North American Industry Classification System. It is the standard system used by the United States, Canada, and Mexico to classify businesses by their primary economic activity. Every business in North America can be described by one or more NAICS codes.

In government contracting, NAICS codes serve a specific and critical purpose: every contract opportunity is assigned a NAICS code by the contracting officer. That code determines the SBA size standard for the contract, which in turn determines which businesses qualify as "small" for that particular opportunity.

How NAICS Codes Are Structured

NAICS codes are hierarchical, ranging from two to six digits. Each level provides increasing specificity:

• 2 digits: Economic sector (e.g., 54 = Professional, Scientific, and Technical Services)
• 3 digits: Subsector (e.g., 541 = Professional, Scientific, and Technical Services)
• 4 digits: Industry group (e.g., 5415 = Computer Systems Design and Related Services)
• 5 digits: Industry (e.g., 54151 = Computer Systems Design and Related Services)
• 6 digits: National industry (e.g., 541512 = Computer Systems Design Services)

Government contracts are classified at the six-digit level. When you register on SAM.gov, you select the six-digit NAICS codes that describe your business. You can (and should) select multiple codes if your business spans several areas.

NAICS Codes and SBA Size Standards

This is where NAICS codes have the most direct impact on your contracting strategy. The SBA assigns a size standard to every six-digit NAICS code. Size standards are expressed either as annual revenue or number of employees, depending on the industry:

• Revenue-based: Most service industries use average annual revenue over the past five years. For example, NAICS 541512 (Computer Systems Design) has a size standard of $34 million. If your firm's five-year average revenue is below $34 million, you qualify as small.
• Employee-based: Manufacturing and some other industries use number of employees. For example, NAICS 336411 (Aircraft Manufacturing) has a size standard of 1,500 employees.

The size standard for a contract is determined by the NAICS code the contracting officer assigns to that opportunity — not by your primary NAICS code. This means you might qualify as small for some contracts and not others, depending on which code is assigned. A company with $30 million in revenue would be small under a NAICS code with a $34 million threshold but large under one with a $25.5 million threshold.

How to Choose the Right NAICS Codes

Selecting your NAICS codes is not just an administrative task — it is a strategic decision. Here is how to approach it:

• Start with what you actually do. Your primary NAICS code should describe your core business activity. Look at the official NAICS descriptions at census.gov/naics and find the code that most closely matches your primary revenue source.
• Add secondary codes. Most businesses legitimately operate under multiple NAICS codes. An IT services firm might use 541512 (Computer Systems Design), 541511 (Custom Computer Programming), and 541519 (Other Computer Related Services). Register all codes that apply.
• Check the size standards. Before selecting a code, verify the SBA size standard. If two codes are equally valid for your work, the one with a higher size standard gives you more room to grow while remaining small.
• Research the competition. Use USAspending.gov to see how many contracts are awarded under each code you are considering. Some codes have far more government activity than others.

Common Mistakes to Avoid

New government contractors frequently make these NAICS-related errors:

• Picking too broad a code. Choosing a general code like 541611 (Administrative Management Consulting) when your work is really 541512 (Computer Systems Design) means you are competing against a different (and potentially larger) pool of companies, and the size standard may not favor you.
• Picking too narrow a code. Conversely, an overly specific code can limit the number of opportunities you see. If a code only has a handful of contracts posted per year, consider whether a slightly broader code would serve you better.
• Not updating codes as you grow. As your business evolves, your relevant NAICS codes may change. Review your SAM.gov registration annually and add or remove codes as needed.
• Ignoring the assigned code on a contract. The NAICS code on the solicitation is what matters for size standard determination on that contract, not your primary code. Always check whether you qualify as small under the opportunity's specific NAICS code before investing time in a proposal.
• Listing codes you cannot perform. Only register NAICS codes for work you can actually deliver. Misrepresenting your capabilities in SAM.gov can have serious consequences, including debarment.

Finding Your NAICS Codes

If you are not sure which NAICS codes fit your business, there are several resources available. The Census Bureau maintains the official NAICS search tool at census.gov. The SBA publishes a complete table of size standards by NAICS code, updated annually.

For a faster approach, use our NAICS Code Finder tool. Describe your business in plain language and the tool will identify the most relevant codes, show you the associated size standards, and tell you how many active government contracts use each code.

Once you have your codes identified, you can set up alerts in GovSentry to automatically monitor new contract opportunities under those specific NAICS codes. Combined with set-aside filters — like those covered in our 8(a) Certification Guide — you will have a targeted, efficient pipeline of opportunities matched to your business.