Cost control: How to avoid high window markups

Now may be a good time to buy replacement windows for your home. The lack of new residential construction has put tremendous pressure on building contractors to win work and stay solvent. As a result, windows and doors prices have softened as hard-pressed remodeling contractors have lowered their markups on materials in order to submit competitive bids.

Windows and doors prices: typical markup costs

Overbuilding and high foreclosure rates in many parts of the country, such as California, Nevada and Florida, left large oversupplies of inventory and forced smaller, independent, building contractors to turn to remodeling work in order to stay busy. Even then, work is scarce.

Contractors typically mark up the cost of windows and doors and other materials in order to garner more profit. As a rule of thumb, you can expect a contractor to add 20 percent to 50 percent to the cost of materials. Not fair, you say? Understand that by marking up costs, your contractor is not gouging you.

Licensed contractors have to pay for various expenses such as labor, insurance and bonding, tools and perhaps even a small office and staff. It is standard practice in the construction industry to cover these costs by adding markup charges for materials, Remodeling Magazine reports. Markup percentages are often determined by adding all the various overhead costs; and then multiplying that figure by a number that results in at least a 10-percent, profit margin, according to contractors blogging on a site dedicated to contractor issues.

How to minimize markup costs

The good news for you as a homeowner is that the market has basically corrected itself. In 2011, London-based L.E.K. Consulting surveyed more than 500 contractors, who had five or more years experience and at least three employees. The survey found that 44 percent of contractors have lowered their expectations on profits to win business. And savvy homeowners are playing their part, too: Contractors reported that 30 percent of their purchasing decisions are based on homeowner input.

So, don't be shy about discussing bids for your renovation project. Look at the numbers, and ask your contractor about markup costs. If you know what windows and options you want, consider ordering them yourself from a manufacturer or distributor. Lastly, consider using smaller construction companies--chances are they have less overhead and don't need to make as much money per job to survive.