Small Businesses and the NAICS

In the 1930’s, the federal government developed and introduced the first U.S. system to classify business establishments based on type of primary business activity.  At that time, our economy was primarily driven by manufacturing.  This system was known as the Standard Industrial Classification (SIC) system and utilized a hierarchical four-digit coding system with ten major categories or sectors; thus many of us are familiar with the term SIC code.

By the 1990’s, economies all around the world had dramatically changed over the past sixty years and governments began discussing the need to make changes in their classification systems. The new structure, introduced in 1997, is also a hierarchical system that utilizes six-digit codes with twenty major categories or divisions; it’s called the North American Industry Classification System, or NAICS.  NAICS groups establishments together based on production processes and is compatible up to the five digit level with the systems used by Canada and Mexico.  Additionally, it’s compatible up to the two digit level with the International Standard Industrial Classification of All Economic Activities of the United Nations.

Now that you know a little about the background, let’s address why a basic understanding of the U.S. business classification system is important for a small business.

First of all, by researching business data using a standardized code, such as the NAICS code, one can find out how many businesses like yours are operating and where they are located.  As an example of a geographically congregated industry, you’re likely to find a high percentage of furniture manufacturers located in North Carolina.  Furthermore, these codes will be helpful in preparing your marketing plan as you need to be able to clearly describe your business, suppliers (if applicable), and competition.  If you operate in the B2B market, you can also use use an industry coding system when describing your target market(s).

Second, one can use this industry data to study trends of past activity to make estimates of what may happen industry-wise in the future.  As an example, if the government had been tracking blacksmiths or manufacturers of buggy whips, one would have noticed a continual decline in these industries.  Two modern examples are the decline we’re seeing in the number of video-rental stores and independent travel agencies.

Third, one can use industry data to compare and contrast basic characteristics within your industry, such as employment (size of business) and full and part-time employment levels.  By visiting www.census.gov you’ll obtain a quick overview of the types of business and industry surveys and reports made available by the U.S. government. 

Fourth, a NAICS code is necessary for a wide range of documents.  Federal and state entities ranging from the U.S. Environmental Protection Agency, the IRS and the Census Bureau will require a business to provide their NAICS code on many of their applications and reports.  Other practical uses include attorneys filing required government documents, banks evaluating loan applications, insurance companies accessing risks and mailing list publishers compiling business data. 

If you’re familiar with the old SIC system given below, you’ll recognize carryover to the new system. The ten categories of the older SIC system are:

  1.  Agriculture, Forestry and Fishing
  2. Mining
  3. Construction
  4. Manufacturing
  5. Transportation, Communications and Public Utilities
  6. Wholesale Trade
  7. Retail Trade
  8. Finance, Insurance and Real Estate
  9. Services
  10. Public Administration 

The twenty categories and the corresponding first level two-digit codes of the newer NAICS system are: 

  • 11         Agriculture, Forestry, Fishing and Hunting
  • 21         Mining, Quarrying, and Oil and Gas Extraction
  • 22         Utilities
  • 23         Construction
  • 31-33    Manufacturing
  • 42         Wholesale Trade
  • 44-45    Retail Trade
  • 48-49    Transportation and Warehousing
  • 51         Information
  • 52         Finance and Insurance
  • 53         Real Estate and Rental and Leasing
  • 54         Professional, Scientific, and Technical Services
  • 55         Management of Companies and Enterprises
  • 56         Administrative and Support and Waste Management and Remediation Services
  • 61         Educational Services
  • 62         Health Care and Social Assistance
  • 71         Arts, Entertainment, and Recreation
  • 72         Accommodation and Food Services
  • 81         Other Services (except Public Administration)
  • 92         Public Administration

For those of you who live in the greater Southlake, Texas area, here are highlights by industry (utilizing NAICS divisions) of businesses in this market as published in the 2005 County Business Patterns.  In 2005, 4,563 establishments were reported in the greater Southlake market based on a compilation of data for the seven zip codes in this market.  Roughly 14.7 percent of all businesses were involved in Retail Trade, 13.5 percent were involved in Professional, Scientific and Technical Services and 9.4 percent were classified in the Health Care and Social Assistance division.

If you would like to learn more about using NAICS codes to make your marketing efforts more profitable, please contact Kate Barlow at KGB Strategic Marketing Solutions. 

Finding the Number of Competitors within a Given Area

Here’s an easy way to research the number of businesses like yours within a zip code or county.

The U.S. Census Bureau produces a very useful publication called County Business Patterns that is found online and is FREE! 

This resource provides data on number of establishments, number of employees, annual payroll, and number of establishments by employment size.
 

For an individual business, the significant feature of this data is the industry specific information.   The current series is available by year for 1998 through 2005; thus one can learn how his/her industry has evolved during recent years.

The federal government uses a hierarchical system called NAICS, or North American Industry Classification System, to categorize businesses.

At the first level, there are 20 divisions and each is further subdivided. As an example, category 44-45 includes Retail Trade.

  • 448 is Clothing and Clothing Accessories Stores
  • 4481 is Clothing Stores, and is further subdivided into a six-digit level
  • Men’s Clothing (448110), Women’s Clothing (448120), Children’s and Infants (448130), etc.

Potential Competitive Information Sources

Gathering information about your competition is important whether you’re planning a business, just starting out or have been operating for years.  In particular, one can often gain useful information from numerous government agencies.  If your occupation or profession requires licensing, certification, registration or permitting, consider contacting that specific regulatory body for information on your competitors.     

Within Texas, numerous occupations and businesses require some type of license, permit, registration or certificate.  Below is a preliminary list of Texas licensing and regulatory agencies at the state level.  This list is not inclusive of all occupations and professions, but will hopefully offer ideas.  As is always the case, it is best to consult with your attorney about the necessary license(s) required for your specific industry or profession prior to opening your business.   

This list was assembled in August 2007.  Due to our ever-evolving world, changes may occur regarding contact information, regulations, agency names, etc.  Thus plan to do your homework!   

If the following list is not helpful, visit www.texasonline.state.tx.us and click on “Online Services” to find a listing of links relating to acquiring licenses, permits and registration in Texas.  Also take the time to contact city and county officials as these agencies may have relevant information about your competitors. 

For additional information about the benefits and process of researching your competition, please contact us at kgbmarketing@hotmail.com 

Executive Council of Physical Therapy & Occupational Therapy Examiners

Public Utility Commission of Texas

Texas Appraisers Licensing & Certification Board

Texas Board of Architectural Examiners

  • Architects, interior designers, and landscape architects
  • www.tbae.state.tx.us                

Texas Board of Chiropractic Examiners

Texas Board of Law Examiners

Texas Board of Nurse Examiners

Texas Board of Professional Engineers

Texas Board of Professional Geoscientists

Texas Board of Professional Land Surveying

Texas Board of Tax Professional Examiners

  • Appraisers, assessors/collectors, and collection
  • www.txbtpe.state.tx.us              

Texas Commission on Environmental Quality

  • Covers variety of occupations such as irrigators, installers, etc. and industries such as air quality, dry cleaners, water treatment, etc.
  • www.tceq.state.tx.us

Texas Department of Agriculture

  • Wide range of agricultural and animal licensing and permitting such as pest control, nurseries, floral, seed growers, etc.
  • www.agr.state.tx.us                  

Texas Department of Family & Protective Services

  •  Child care licensing, etc.
  •  www.dfps.state.tx.us                

Texas Department of Insurance

Texas Department of Licensing & Regulation

  • State’s umbrella occupational regulatory agency including air conditioning & refrigeration contractors, electricians, barbers, cosmetologists, etc.
  • Covers 22 occupations & industries
  • www.license.state.tx.us            

Texas Department of Public Safety

  • Private investigators, couriers, security consultants, etc.
  • www.txdps.state.tx.us              

Texas Department of Savings and Mortgage Lending

Texas Department of State Health Services

  • Extensive site with 22 regulatory programs such as athletic trainers, social workers, etc.
  • www.dshs.state.tx.us               

Texas Department of Transportation

  • Registration for commercial motor vehicles such as tow trucks, hazardous material, household goods, motor carriers, etc.
  • www.dot.state.tx.us

Texas Funeral Service Commission

Texas Medical Board

  • Physicians, acupuncturists, etc.
  • www.tmb.state.tx.us                

Texas Optometry Board

Texas Parks and Wildlife

Texas Racing Commission

  • Over 50 categories of occupations/licenses including trainers, jockeys, mutuel teller, etc.
  • www.txrc.state.tx.us

Texas Real Estate Commission

  • Agents, brokers, inspectors, etc.
  • www.trec.state.tx.us                

Texas Residential Construction Commission

Texas State Board of Dental Examiners

Texas State Board of Examiners of Psychologists

Texas State Board of Pharmacy

Texas State Board of Plumbing Examiners

Texas State Board of Podiatric Medical Examiners

Texas State Board of Public Accountancy

Texas State Board of Veterinary Medical Examiners

                                                    

My Eye Opening Marketing Experiment

In my May 2007 newsletter, I briefly spoke about the collection of printed marketing materials gathered at our home in just one week.  I’ve been reading that the average American consumer receives anywhere from 600 to 3500 plus marketing messages each day, so this was my personal test. 

I was astonished to learn the collection weighs over 20 pounds and measures 14 inches by 10 inches by 12 inches. 

The collection includes:

  • Seven issues of The Dallas Morning News including all circulars (we are subscribers)
  • Two Southlake weekly newspapers and circulars
  • Eleven monthly glossy magazines targeting our area ranging from Baylor Health, Clipper Magazine, Distinctive Homes, Northeast Tarrant Edition of Living magazine to Society Life.  My collection excludes magazines to which we subscribe!
  • Four letters within envelopes which is lower than average.  I’ve excluded inserts within personally addressed invoices and mailings such as our checking account and utility statements, letters from charities we support and solicitations for my home-based business.
  • Twenty-two catalogs, with three representing companies I routinely patronize.  The majority are from retailers from whom I’ve never made a purchase.
  • Four door hangers and one food drive collection sack
  • Six postcards of various sizes which appears lower than average, as some days we’ll receive at least three.

Since reviewing the collection, I must add that we didn’t receive any cellophane packaged or half-sheet circular sets such as Money Mailer or RSVP.  This week alone, we’ve received three sets!  On average, we receive at least three items from realtors every week.  The count also excludes all the promotional pieces sent home by the school district.  I’m going to undertake another collection next week just focusing on postcards and letters and will keep you posted on the results. 

So what does this all mean for the local small business trying to reach consumers?  Unless you have unlimited dollars for promotional efforts, a small business will benefit from target marketing.  This process starts by studying your existing customers.  Important questions include where do they live, what are their demographics (gender, income, age, household type, etc.), and what are their interests (outdoor activities, children’s sports, travelers, professional or college sports enthusiasts, etc.)?  What benefit or benefits do they receive from purchasing your products or services?  How do your customers find you and how do they shop? What efforts have been the most successful in recent attempts?  How do your competitors reach your target market? 

If you would like to know more about target marketing, please send an email to kgbmarketing@hotmail.com or contact us at 817-488-2761.   

Marketing Fundamentals

No matter how small or large your business, certain guidelines apply to marketing.

Marketing requires a commitment.

  • Balance time, effort, money and creativity.
  • Establish a specific amount of time to market your business on a regular basis, such as phoning or visiting prospects and other contacts. Take the time to prepare a script, or at least notes on what you want to say. Marketing goals and calendars come in handy!
  • As Jay Conrad Levinson states in his books about Guerrilla Marketing, if you can’t rely on money, use creativity and effort in place of expensive promotional activities. These efforts can yield significant benefits if your business is based on building long term relationships.
  • Establish a program and give it adequate time to produce results.
  • Visit the competition or study their marketing materials.

Marketing is an investment.

  • An often used example compares marketing to investing in a blue chip stock. The value of this stock has highs and lows, but over the long run is profitable.
  • Just as the stock market responds to factors such as gas prices, hurricanes and politics, your marketing efforts experience peaks and valleys.
  • Think about the impacts from seasonality, technology improvements, training, and employee turnover.
  • Don’t hesitate to ask questions before spending your money!

Marketing should be consistent.

  • Seek to build trust with your customers so they know what to expect from your product or service. Consider how long it takes you to trust others before you’re willing to do business with them, or refer someone else to them.
  • Clearly state the benefits of your products and services throughout all your marketing messages. Identify the key benefits and focus on them!
  • If you provide a product or service that isn’t frequently purchased, you need to assure customers you’re still in business.
  • Think about the marketing messages sent to your home or business. How many times must you see a message before you give it a second thought, or call the business?

Marketing efforts can be improved with testing.

  • If you are planning to place an ad, use direct mail or even design a new business card, test a few options to see which brings the best response.
  • Experts recommend involving people who have no vested interest in your success so they’ll be honest with you.
  • Again, what recent messages have been the most effective for you? Look through various publications and gather samples of what you find effective.

Marketing activities should be tracked and measured.

  • When your phone starts ringing, ask your prospects how they heard about you. If a retailer, ask a few questions when purchases are made.
  • Track mailed promotional items.
  • Compare the cost versus the effectiveness of your efforts. As an example, I’ve joined a BNI group and I’m weighing the cost in terms of dollars and time invested versus the amount of business I’ve gained and professional contacts made.

Marketing requires more than one tool or method.

  • Examples of marketing tools include business cards, elevator speeches or tag lines, note cards for saying thanks or glad we met, client testimonials, websites, seminars, trade shows, coupons and samples.
  • Examples of paid advertising include newspaper ads, billboards, and CDs/DVDs.
  • Again, it’s beneficial to evaluate the effectiveness of each method.

And if you haven’t guessed, marketing success and your business’ success is dependent upon knowledge about

  • your costs
  • your customers
  • your competition.

Is It Time to Consider Changing Your Distribution?

Here are common reasons for a business to establish new distribution methods for their product or service.

  1. If your customers’ buying patterns change. As an example, companies that traditionally sold door-to-door had to find new methods as more women work outside the home.
  2. If your market is expanding, geographically or another use has been found for the product, find additional ways to reach these new customers. One option is expanding from company owned stores to specialty retailers.
  3. If you have new competitors, they’ll likely develop new distribution methods. As an example, consider how the U.S. Postal Service is evolving due to competition from UPS, FedEx and mailing centers.
  4. If new methods of distribution become available, such as the Internet, are they cost effective for you?

And don’t forget, the customer will likely expect you to maintain records of all their purchases from different methods and receive an appropriate discount based on total purchases.

Pricing Considerations

Businesses of all size and type have to consider three main factors when selecting a price for their product or service.

  1. Their customers’ demand for the product or service
  2. Their competition’s pricing structures
  3. Their own costs, both fixed and variable.

Small businesses, in comparison to larger organizations, generally have limited resources for studying and analyzing pricing options. Here are a few practical big picture questions to address when your small business is focusing on pricing issues.

  1. How easy is it for your customers to obtain prices from your competitors?
  2. Do you have a large or a small number of competitors?
  3. If you price too low from the start, will it be too hard to raise your price?
  4. Is your product or service price-sensitive, including small changes in price, prices ending in “9” or “5” or the overuse of sales? Do you have industry information or your own data to guide you?
  5. Do your costs vary by customer? Accountants and financial documents provide meaningful insight.