Understanding AI Token Costs
What are Tokens?
Tokens are the basic units that AI models process. In English, a token is approximately 4 characters or ¾ of a word. Understanding tokens is crucial for:
- Cost estimation
 - Context length management
 - Response optimization
 - Budget planning
 
Cost Factors
Model Selection
- More powerful models cost more per token
 - Larger context windows increase costs
 - Different rates for input vs. output tokens
 
Usage Patterns
- High-volume discounts available
 - Fixed vs. variable costs
 - Development vs. production pricing
 
Optimization Tips
- Prompt Engineering: Write efficient prompts to reduce token usage
 - Model Selection: Use the most cost-effective model for your needs
 - Caching: Store and reuse common responses
 - Batch Processing: Combine requests when possible
 - Context Management: Only include necessary context
 
Common Use Cases
Development
- Prototyping
 - Testing
 - Fine-tuning
 
Production
- Customer Service
 - Content Generation
 - Data Analysis