There was an article about the economics of mercenaries that I'll sum up; I wish I could find the thread on here that first linked this article, but it eludes me for now. http://www.personal.psu.edu/~dxl31/research/presentations/mercenary.html The thrust of the article is that mercenaries prosper when skill is more important than mass, and when states aren't developed the economy of scale where it's cheaper to field a larger number of citizen-soldiers than a mercenary company.
Furthermore, mercenaries face principal-agent conflict with their employer; they want the war to continue as long as possible with the least danger to themselves, while the employer wants it to be over quickly, with the safety of the mercenaries being unimportant as long as the goal is met.