A modeling agency is a company that earns profits from contracts between advertising agencies or designers and the models they hire to market their products or services. A modeling agency is the middle-men in this case which earns from commissions from both the contracting agency and the model. Average percentage for a good modeling agency is between 10% ~ 40% of the contract. It is interesting to note that this earning is both ways, from the model being hired and from the agency hiring him.
A modeling agency seeks to maximize its profits by bidding for the highest price of the contract. This means the availability of top notch quality models. In turn, this translates into investment in the model being pitched for hiring. A modeling agency invests in the models to increase their talent and modeling skills.
Modeling agencies basically represent the models to the hiring contractor and are responsible for keeping track of the models bookings, billings and such things. By taking care of the nitty gritty details, the modeling agencies allow the models to focus on modeling instead of on the financial perspective. Finally, they are the ones who pay the models for their work time. Interestingly, the contract is between the modeling agency and the hiring agency and the payments are made to the hiring agency, not to the models directly. The modeling agencies payout the models from the payment received minus their own commission from the contract.
Scams are widespread in the modeling industry with many agencies preferring dishonest business practices. A dishonest modeling agency mostly demands of models to commit high commission percentages or pressurizes them to give up some of their rights or they might pretend that they are doing business when in actuality, they probably only offer modeling courses to aspiring models. In the US, the Better Business Bureaus deal with complaints lodged against fraudulent modeling agencies practicing unfair business practices.
Legitimate modeling agencies should have proper knowledge of the market and should honestly evaluate its models for hiring.