Your requiring activity specifies the applicable CMMC level based on the information involved in the contract.
Level 1 applies to organizations handling Federal Contract Information. It covers 15 safeguarding requirements and requires an annual self-assessment and affirmation. POA&Ms are not permitted.
Level 2 applies to systems that process, store, or transmit Controlled Unclassified Information. It covers the 110 requirements in NIST SP 800-171 Revision 2. Under the current Phase 1 implementation, a requiring activity may specify a Level 2 self-assessment, with annual affirmation and limited POA&M eligibility.
Level 3 is intended for selected contractors supporting high-priority programs and adds requirements based on NIST SP 800-172. New Level 3 implementation requirements are currently paused during the federal CMMC reform review.
The correct starting point is your solicitation, contract, security classification guidance, and CUI data flow. Your organization does not independently choose its required level.