Just like the HUBZone map, NAICS codes change every 5 years. This review of NAICS codes ensures relevance, accuracy, and timeliness of the classification. The review happens over the course of a couple years.
The committees considers public recommendations as well as the Economic Classification Policy Committee (ECPC).
They both submit their recommendations to the Office of Management and Budgets (OMB) who ultimately decides on changes to the NAICS code system.
The three North American countries have their own agencies to coordinate the changes to NAICS. Through the economic Classification Policy Committee, the Instituto Nacional de Estadistica y Geografia (INEGI) of Mexico, Statistics Canada and the US Office of Management and Budget (OMB) changes were made to NAICS codes in 2022 to account for the rapid changes in the economy. The principle of NAICS is to group together establishments who produce similar goods and services. The right NAICS codes can also qualify you for certain set-aside contracts like those set aside for 8a certified small businesses.
What are NAICS Codes?
NAICS stands for the North American Industry Classification System. It was established to classify businesses, agencies, and firms in the entire North American continent. This system was created to facilitate the collection of business data and promote uniformity in the presentation of economic data in North America.
Not only does the Census Bureau and other statistical agencies utilize the NAICS system for classifying data, but other establishments, such as private business, use it as well.
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Changing NAICS codes brings challenges for businesses.
On the Federal side, implementing changes to the NAICS code system is costly. It also causes problems for those who use the statistical data collected. Economic, policy and statistical challenges arise when the NAICS codes change. It’s the job of the OMB to decide whether the change is worth the cost. This is why the OMB performs the review over a few years and considers the input from data users, providers, and producers.
NAICS Codes Industry Classifications
The classification system developed a 2-digit code for each sector represented in the economic census. There are a total of 20 sectors included in our current NAICS codes. The following chart shows each sector’s number, a short description of the sector, and the number of entities classified in that sector as of 2022. Each number is linked to its search on census.gov.
According to census.gov the 4 principles of NAICS are:
- NAICS is erected on a production-oriented conceptual framework. This means that producing units that use the same or similar production processes are grouped together in NAICS.
- NAICS gives special attention to developing production-oriented classifications for (a) new and emerging industries, (b) service industries in general, and (c) industries engaged in the production of advanced technologies.
- Time series continuity is maintained to the extent possible.
- The system strives for compatibility with the two-digit level of the International Standard Industrial Classification of All Economic Activities (ISIC Rev. 4) of the United Nations.
Proposals for Changes to NAICS codes
The ECPC is directly responsible for gathering recommendations from the public and compiling them for review. They maintain the principles of NAICS while reviewing all proposals from the public. They will request, review, and analyze all proposals and negotiate any change with Mexico and Canada, our North American partners. Once the ECPC completes its process, the OMB takes over to make final decisions and present the changes to the public for final comment.
Following the basic principles for NAICS, all proposals are evaluated based on their function, their comparison to Mexico and Canadian NAICSA and their effect on time series continuity. Once all three countries reach an agreement, they will review the potential affect the changes will have. The new industries have an appropriate size. This means there are enough establishments to consider within the proposed NAICS codes to hide specific information about business when statistical data is collected and presented. The government must be able to gather and publish data about the industry.
Also, the budget for the change must be considered. There are instances where the change will require monetary support that must be accounted for within the budget. Sometimes funding is not available and the changes will be denied. All establishments within the changing codes must also be considered when it comes to the costs of changing their NAICS codes.
NAICS vs. NAPCS
The little sister to NAICS codes is NAPCS codes for short. North American Product Classification System is meant to accompany NAICS but on a different level. These codes classify products or transactions of the establishment. While NAICS provides a classification on similar production functions, NAIPCS classifies what is output by the establishment. The hierarchy of this classification is similar to that of the NAICS code but it’s not industry-of-origin based. This means that multiple establishments in different NAICS codes can have the same NAPCS codes depending on the products and services they provide.
Marketing using NAICS codes
One way to find new business is to target relevant NAICS codes and perform market research. These codes provide industry targeting. Using these codes you can segment your market to find which industries best represent your ideal customer. When you know your NAICS code, you can utilize the first two digits of your NAICS to find other similar lines of business to your current target customer.
You can search for NAICS codes based on keywords for your industry to find the exact relevant codes for your customers. Then you can dive into NAICS databases and locate clients within your keyword driven NAICS codes for optimal marketing efforts. You don’t want to waste your time and efforts marketing to irrelevant businesses. Using NAICS codes can specifically target who you should be marketing to and focus your strategy there.
Aren’t sure what to do now?
Let Select GCR help guide you in the right direction. We can help you choose the right NAICS codes to suit your business model. As well as walk you through the next steps on how to market to your targeted NAICS codes. There are secrets to success in the Government contracting world. Let us show you our proven effective marketing strategy and get you on the road to increased revenue.