NAICS codes are standardized six-digit classification codes that categorize businesses by industry. The government uses NAICS codes to determine eligibility for set-aside programs and to match opportunities with contractors.
NAICS stands for North American Industry Classification System, and it's how the government standardizes business classification. Every business is assigned one primary NAICS code (and can claim up to 5 secondary codes) that describes what they primarily do. The code is hierarchical: the first two digits identify the sector, the next two add detail, and the final two provide specificity. For example, 541512 is "Computer Systems Design Services," while 541511 is "Custom Computer Programming Services."
NAICS codes matter for federal contracting in several ways. First, they determine whether you're eligible for size-based set-asides. Small business size standards are defined by NAICS code—a small business in one industry might be 500 employees, while in another it's 1,500. Second, they help agencies find you. When an agency needs a specific service, they search by NAICS code. Third, they determine whether you're eligible for industry-specific programs.
Why it matters: Choosing the right NAICS code is a strategic decision. If you pick the wrong one, you might miss opportunities you're qualified for, or you might be deemed ineligible for set-asides. Many companies claim multiple NAICS codes to cover different service lines. You can also change your primary NAICS code, but it's a one-time annual change that takes effect on your next SAM.gov renewal.
In practice, finding the right NAICS code requires research. The SBA publishes detailed descriptions of all codes, and there's often overlap—a software company might legitimately fit into several codes. One strategic consideration: picking a NAICS code where the size standard is higher gives you more room to grow before you "age out" of small business status. Another consideration is whether you're likely to be the only bid in that NAICS code (less competition for set-asides).
Agencies also use NAICS codes to forecast small business spending and set goals. If you're in a code where the agency sets ambitious small business spending goals, you'll see more set-aside opportunities.