Starting out initially is the hardest part. If you have no studio behind you, it's hard to convince a band to record with you as a freelance producer/engineer. You need something substantial in order for them to trust you enough to pay you for a job the house engineer may well be able to do just as well, if not better than you. Then there's the rates. Every single guy with a 002 in his backyard shed is claiming he can outdo the local professional studios in re: to quality, whilst charging barely enough to stop himself having to push heroin on the streets in order to survive. A lot of these guys are the ones depreciating the value of the entire industry and process. The local independent and major studios have to cut costs in order to compete with people who have no idea how their undercutting will come back to bite them in the arse one day.
My outlook of it is this... having awesome engineering/production skills just puts you at square one. There are so many guys out there that are good at doing this due to the high availability of recording gear for project studios. What sets you aside is your ability to network, build clientele and most of all, make your clients happy with the work you put out, so that word will spread.
It's a slow start if you're not someone who's already got a name behind them. Most guys never really make enough money out of it to really etch any sort of living out of production/engineering alone. One thing you need to accept is the large average failure rate, and that you should get into this because you love doing it, not because you think you'll make millions. The passion is so important. A recent conversation with Mike Kopitz (INXS, AC/DC, Bob Dylan, Kiss etc.) confirmed this for me.
As far as my own story goes... I recorded my first band over 2 years ago and since then have continued to hone my skills whilst studying full time, and have currently put out 2 EPs, am finishing my first full-length album, have another album lined up next month, two EPs after that, and possible future work due to word of mouth. I currently don't have enough volume of work to live off it, but if I did around 2 projects a month at the rates I charge, I would be fairly comfortable. It just takes time above all, with a healthy dose of prayer, stress and self-promotion.
). I'm still halfway through university, though, plus finding a place is an enormous obstacle in my city so I pretty much can't record drums and have to mix bad sounding drums recorded at rehearsal studios. Bands don't have much money and there's a million other obstacles but hey, I don't care, I'm not aiming at a fancy lifestyle, just doing what I find interesting and getting paid for it. Sure beats working at a grocery store 
