What Is a NAICS Code?
A NAICS code is a unique identifier used to classify businesses by industry. A NAICS code comprises six numbers. Each number narrows down the industry to more accurately classify a business's business activities.
The first two digits of a NAICS code identify the major sector, the third identifies the subsector, the fourth identifies the industry group, the fifth is an industry comparison number, and the sixth identifies country-specific industry details.
Our What is a NAICS Code guide explains more about the NAICS. It also explains who uses NAICS codes and how businesses can use them beneficially.
Need help getting a NAICS code? Use our NAICS code lookup tool for free.
Who Uses NAICS Codes and Why?
The North American Industry Classification System (NAICS) is the successor to the Standard Industrial Classification System (SIC) and is used by federal statistical agencies to collect, analyze, and publish statistical data related to the US economy. These statistics are published by the United States Census Bureau and are freely available to everyone.
Federal and state governments use NAICS industry codes to track a particular industry group and services to determine whether to offer tax incentives or award government contracts. SBA loans use it as a risk assessment metric for certain industries or specific locations.
Businesses use NAICS codes for growth opportunities. For example, they use NASICS codes for market research, finding new business partners, winning contracts, and saving on taxes.
Recommended: Use our NAICS code for LLC guide to learn which states require LLCs to have a NAICS code.
Benefits of NAICS Codes
By using the same code system, businesses can more easily compare themselves with similar businesses in their industry. This allows them to benchmark their performance and find areas where they can improve.
Other ways businesses can use NAICS codes to their advantage include:
1. Finding New Customers and Business Partners
Companies use the NAICS system to find new customers. Once they determine who their ideal customer is and determine the matching NAICS code, it's as simple as doing a keyword search on Google for companies with the same NAICS code. From there, new partnerships can be made.
To find new customers, companies can match NAICS codes to their current customer base. Then they can reach out to these new leads, knowing already their industry and how to approach them positively.
2. Obtaining Grants, Contracts, and Loans
Business grants, government contracts, and SBA-certified loan qualifications are determined by the Census Bureau's statistical agencies and other government offices. NAICS codes are used for risk assessment for enterprises that produce goods in certain industries.
NAICS codes can also be used to help businesses secure government contracts. In order to be eligible for many many of these contracts, businesses must first determine their primary NAICS code. This code is then used to determine whether the business meets the size requirements for the contract.
Listing an inaccurate NAICS code could potentially disqualify a business from winning a contract, business grant, or SBA loan.
3. Determining Insurance Rates
Insurance companies often use NAICS codes to determine which industries are riskier to insure than others. By classifying your business under the correct NAICS code, you could save your company a significant amount of money on its insurance premiums.
4. Identifying Opportunities for Improvement
The US Census Bureau publishes NAICS codes, which are used to classify businesses and other economic units into industry categories that enable analysis of the economy's structure and performance.
A company can use this database to find new opportunities by identifying the industry categories of their competitors and then comparing their performance to that of competitors. They can then mirror companies that are doing well, avoiding activities that hurt growth.
5. Conduct Market Research
A company can determine what its primary market wants by researching companies with the same NAICS industry code as its customers. Since each organization is assigned a NAICS code, management can pull the data to quickly determine these needs.
6. Forecasting
In business, forecasting is the process of estimating future demand for a product or service. The most common forecasting method is trend analysis, which uses historical sales data to identify patterns and extrapolate them into the future.
Once you have identified the appropriate NAICS code, you can begin to gather data on past sales. This data can be sourced from financial reports, customer surveys, or other data sources. Once you have this data, you can begin to find trends and develop forecasts for future sales.
7. Saving on Taxes
There are many tax benefits available to businesses, but the eligibility for each one depends on the NAICS code of your business. To take advantage of these tax breaks, it's important to know which NAICS code corresponds to your business activities.
NAICS Code vs. SIC Code
NAICS is the US Census Bureau's system for classifying companies. It is the first economic classification system to be built on the basis of a single economic concept. Economic units that use identical processes to produce goods or services are grouped.
NAICS's predecessor was the SIC system. This older system is still in use, mainly by marketers, given the SIC code system was based on business activity evolving into market categories. The SIC code system uses four numbers instead of six.
You can convert SIC codes to NAICS codes so management can compare numbers assigned to each classification.
NAICS System FAQ
The North American Industry Classification System (NAICS) is an industry classification system used by business and government organizations to collect and report statistical data. The NAICS was developed in 1997 to replace the Standard Industrial Classification (SIC) system, the first economic classification system used by the US.
The North American Industry Classification System (NAICS) was developed by the United States, Canada, and Mexico as a common system for classifying business establishments. The main purpose is to collect statistical data on the US economy, so governments and corporate entities can make better economic decisions.
There are many different online search functions businesses can use to search their NAICS code. To find your NAICS industry code, visit our free NAICS code lookup tool to search by keyword, industry group, etc.
Some states require LLCs to list an applicable NAICS code on their formation documents. You can find out which states require this and even find your code by visiting the NAICS code for LLC guide.
Yes. The Small Business Administration (SBA) is an agency of the United States government that works to ensure small businesses have access to the resources and opportunities they need to thrive. One of the ways it does this is by helping them get federal government contracts. To determine whether or not a business meets the criteria for government contracting, the SBA uses North American Industry Classification System (NAICS) codes.
NAICS codes are used to classify enterprises based on their economic activities, making it easier for organizations like the SBA to assess a business' size and eligibility for certain programs. The primary NAICS code assigned to each business helps determine its size classification and other related factors. The SBA uses this information (specifically the company's primary line) as part of its evaluation process when deciding if a company can qualify for federal contracting opportunities.