Selling using the honor system

This is sort of a follow up to a post a few months back. I recently converted a solo software project into a "business" (in quotes because it has a non-profit motivation and I make very little at this point).

The bad news is that the software is really a niche market (software to count ranked votes such as instant runoff voting) so you can't make any money unless the price is high. The good news is that I don't have any serious competition.

Because I want lots of people to use it, I set the price to $5 for individuals and small non-profits. Because there is no good alternative, I set the price to $999 for companies. With this mix, I'd like to get a decent revenue stream.

I currently sell on the honor system as shown on my download page. The problem is that hardly anyone is honest. Companies just pay $5 and buy it using a company email address with PayPal. This is the typical sequence:

1. I send a polite email informing them that they paid the wrong price and they need to pay the balance owed.
2. They send me a rude email that they are not paying me anything.
3. I respond that I am an attorney (which is true) and that they are liable for copyright infringement.
4. They apologize profusely and agree to pay or delete the software.

Needless to say, this is annoying (for everyone) and doesn't build good customer relationships.

Any suggestions for (1) getting people to pay on the honor system, or (2) another way to sell the same item at difference prices that isn't time intensive (it is just me) and doesn't rely on honesty?

People in the shareware world have been testing your honesty hypothosis for many years. Every test has shown the same results. In general, people are very rarely (not most of the time, not even some of the time, but very rarely) honest given a purchase choice like you mentioned. They will almost always chose to pay $5 rather than $999, even when they know it is wrong.

To put it simply, the honor system will never work for you.

You need to do two things:

1. Find a way to build two separate versions of your software. (This is usually not as difficult as you might think.) One corporate and one personal, making sure the personal version won't work for corporations. You have to force people/corporations to pay you.
2. Fix your pricing. Unless you are selling mobile apps for phones, it is virtually impossible to make a profit selling $5 software. Raise your price to something reasonable. Just imagine that your corporate market is suddenly gone. Can your company survive on sales to only individuals at $29.95, $49.95, or $99.95? Pricing under $29 for a niche product is suicidal.

@GaryE's suggestions are good. Another suggestion, if you don't want to change your pricing (or even if you do) is to only offer the $999 version automatically through the web site, and ask individuals and NPOs to contact you to order the software at the special price. Then you can ask them to prove they are not a business (of course a business can lie, but they have to be more blatent about it this way). And only once you've received the $5, and sufficient proof, then provide them with the link (along with a unique login/password, or whatever) to the software to download.

More than a decade ago, I used a program to catalog the contents of the CDs.

Software was amazing - it was able to extract meta-data from hundreds of formats, including compressed archives and much more...

It was shareware, with high price.

The trick was, it was clearly written on startup:
if you find a bug or suggest valuable improvement
you might get discount or even license for free.

I've mailed with author, prepared for him testacases to help him find a bug, suggested features and I've received free license. Author found out I am private person but loyal user.

The trickiest part is that thanks to such system:

• you can recognize honest user
• thanks for establishing conversation, find out if it's company or private person (e-mail address or footer in email)
• give such user discount (to 10$ or 5$)

Thanks to that:

• user will feel it's reward he is loyal user who contribute
• tell all friends about software
• all will try to help author in development
• they will feel connected with software, as they contributed
• instead of escaping to new software with new feature, they will first try to let you know, there there is something important to them. Giving author change to improve software on their real needs -> what helps in agile development

It short... all of this worked more than decade ago,
and I still miss this software,
but as I changed OS to Linux (and other Unix-es)
this Windows App was no longer suitable for me.

Take care about one detail:
all what I've mentioned worked for that one software developer.
He managed to establish great relationship with clients,
with discounts and free licences he were choosing his users
to have userbase which not only demand, but also contribute!
I think user base who not only demand, but also contribute is mind blowing thing.