When writing a business plan and marketing plan, you should have an accurate view about the industry or industries you are operating in. You may think you're in one industry, but the government and certain information providers (such as Dun and Bradstreet) may categorize you in another. For example, musicians may think they are only in the music industry when they could possibly be in multiple other markets. That's because some business organizations and governmental agencies use what are called NAICS codes and SIC codes to understand the type of business you're in.
So what are NAICS and SIC codes and why are they important?
According to an NAICS webpage, the purpose for these codes was to have a statistical analysis of the U.S. economy and where the economy would lead to. Thus, NAICS and SIC are numerical categories of businesses. They can also be used for tax incentives or for the eligibility of certain business relationships. Once an organization or individual have a clear description of their business nature, they must then find the code that correctly correspond to that description. After you find one code that labels the core nature of your business, you may then find several other codes to label your individual products and services.
You can either use NAICS or SIC codes to label your business and products. The main difference between the two is that NAICS tend to list a larger number of industries and have greater detail about each than SIC would. Because of this, most organizations prefer NAICS over SIC. But it is still good to have both types of codes in case someone requests you to provide one or the other. One type can be converted into the other.
The image below shows examples of codes you may choose from.
These codes can possibly guide you in having a precise understanding of your market and improve your business marketing efforts. So they are actually not useless.
So how would musicians use NAICS codes?
When you visit the census site, you will see a list of major industries that lead to an expanded list of smaller industries your business may be in. Musicians, record labels, music publishers, and record producers would either have to click on the number 71 (the Arts, Entertainment, and Recreation industry) or 51 (the Information industry, which includes sound recording and music production). Skim through these two lists to find all of the descriptions that match your business and your business products. Those descriptions are assigned to a 6-digit number. For example, music artists are labeled as 711130 and music publishers are labeled as 512230. If you sell merchandise that has nothing to do with music (e.g. clothes, perfume, shampoo, books, etc.), you would then find other codes to fit those types of products.
So am I really operating in the music industry?
Depending on the core nature of your business, you may be ironically placed outside of the expected industry. For example, Hot Bird Music is not in the music industry, but rather in the consulting sector. Although Hot Bird Music does sell musical pieces and its customers happen to be musicians, the core nature of the business is business consulting. Still, the entire company is found in three industries: (1) professional and technical development industry, (2) sound recording industry, and (3) internet publishing industry.
I'm sure there were times (or there will be times) you had to fill out surveys and business forms asking you about your industry type, and you had to select from a drop-down box or a list menu. Most of you may readily click on "Arts and Entertainment" just because you see yourselves as musicians or music companies. However, selecting "Arts and Entertainment" may not always be politically correct. The Fruity Loop, Native Instruments, Pro Tools, Cubase, Propellerhead Reason, and Cakewalk companies would select "software" or "technology" as their industry even though their products pertain to music.
I hope I didn't confuse you on this blog post. Please let me know if you need further explanation.
Hot Bird Music
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