NAICS Codes and Federal Contracting: How to Choose the Right Ones

What NAICS Codes Are

The North American Industry Classification System (NAICS) is the standard used by federal statistical agencies to classify business establishments by the type of economic activity in which they are primarily engaged. It is a collaborative effort between the U.S., Canada, and Mexico, updated every five years, and covers the entire economy in a hierarchical structure.

In the federal contracting context, NAICS codes serve a specific and critical function: they determine small business size standards, which determine whether a business qualifies as "small" for a specific procurement. Every solicitation issued by a federal agency designates an applicable NAICS code. Businesses competing on that solicitation must meet the small business size standard for that NAICS to qualify as small.

The Six-Digit Structure

NAICS codes are six digits long. The hierarchy works as follows:

• ▸2 digits: 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: NAICS industry (e.g., 54151 = Computer Systems Design and Related Services)
• ▸6 digits: National industry (e.g., 541511 = Custom Computer Programming Services)

When you see a six-digit NAICS code on a solicitation, it defines the specific economic activity the contract covers — and the precise size standard that determines small business eligibility.

How to Find the Right Codes for Your Business

The starting point is the NAICS search tool at census.gov/naics. You can search by keyword, browse the hierarchical structure, or search by SIC code (the predecessor system) if you have historical data in that format.

For most service-based businesses, the relevant sector is:

• ▸54: Professional, Scientific, and Technical Services — consulting, IT services, engineering, management consulting, legal, accounting
• ▸56: Administrative and Support Services — staffing, business process outsourcing, facilities management
• ▸61: Educational Services — training, workforce development
• ▸62: Health Care and Social Assistance
• ▸92: Public Administration — relevant only for government entities, not contractors

For product-based businesses, manufacturing codes (31–33) or wholesale trade codes (42) typically apply depending on whether you manufacture or resell.

The key is to code what you actually do, not what you wish you did. NAICS codes make representations about your business activities. Misrepresenting your primary NAICS to access more favorable size standards is a compliance violation with serious consequences.

Primary vs. Secondary Code Strategy

Every SAM.gov registration designates a primary NAICS code and can include multiple secondary codes. The strategic use of multiple NAICS codes is both legal and advisable.

**Primary NAICS code:** Represents the largest share of your revenue or the business activity most central to your identity. This is the code that appears first and most prominently in your SAM.gov profile and is most associated with your business in automated searches.

**Secondary NAICS codes:** Additional codes that represent legitimate business activities you perform. There is no hard limit on secondary codes, but maintain codes only for activities you actually perform — having codes for activities you do not perform is a compliance issue and dilutes the relevance of your profile.

For businesses that span multiple categories — for example, a company that provides IT consulting services (541512) and also develops custom software (541511) and also provides systems integration (541512) — multiple codes accurately reflect the business scope and broaden the set of opportunities the business appears in when contracting officers search for vendors.

Size Standards: How They Work

SBA publishes size standards for every NAICS code. They appear in two forms:

**Revenue-based:** Most service industries define small business eligibility by average annual revenue over the preceding three years. Common thresholds: $8M, $10M, $16.5M, $25M, $30M depending on the specific code.

**Employee-based:** Manufacturing, mining, and some wholesale industries use employee count as the size standard. Common thresholds: 500, 750, 1,000, or 1,500 employees.

Size standards are specific to each 6-digit NAICS code. NAICS 541511 (Custom Computer Programming Services) has a $34M revenue size standard. NAICS 541519 (Other Computer Related Services) has a $34M standard. NAICS 541330 (Engineering Services) has a $25.5M standard. The same company might qualify as small under one NAICS and not qualify under another.

This means the NAICS code on a solicitation directly determines whether you can compete as a small business. If a solicitation uses NAICS 541330 and you have $30M in revenue, you are not small. If it used NAICS 541511, you would be small. Contracting officers sometimes choose NAICS codes that affect the competitive landscape — understanding this dynamic is part of advanced market analysis.

How to Update NAICS Codes in SAM.gov

NAICS codes are updated through your SAM.gov entity registration. Log in, navigate to your entity record, and select "Update." In the Assertions section, you can add, remove, or change NAICS codes.

Changes take effect after registration processing (7–10 business days). You can update NAICS codes during your annual renewal or at any time you have a legitimate business reason to add codes.

NAICS Codes vs. PSC Codes

Federal solicitations sometimes include both a NAICS code and a Product or Service Code (PSC). These serve different purposes and are easy to confuse.

**NAICS codes** classify the economic activity of the business performing the work — they define the small business size standard and are used by the SBA.

**PSC codes** (also called Federal Supply Classification codes) classify the specific product or service being procured — they are used for acquisition data reporting. A PSC code of D307 means "IT and Telecom — IT Software Development" regardless of the size of the performing company.

For contractor purposes, the NAICS code is what determines your eligibility. The PSC code is a reporting mechanism. Both appear on solicitations; NAICS is the one that determines small business status.

Key Takeaways

• ▸NAICS codes are 6-digit hierarchical identifiers that classify your business activity and determine small business size standards for each contract
• ▸Each solicitation designates a NAICS code — you must meet the size standard for that specific code to compete as a small business
• ▸Size standards are either revenue-based or employee-based, vary by NAICS code, and are published by SBA
• ▸Use a primary code for your largest activity and add secondary codes for legitimate additional activities you actually perform
• ▸Update NAICS codes in SAM.gov during annual renewal or when your business scope changes
• ▸PSC codes classify the product or service being purchased; NAICS codes classify the business performing the work — they serve different purposes on solicitations