If you’ve ever played around with an AI tool or integrated one into your app, you’ve probably seen a mention of “tokens” somewhere in the documentation or on your bill from the AI provider.

AI tokens are central to how APIs measure and bill your AI usage—and why extra words can cost you serious money.

What are AI tokens and why should your business care about them? This short article covers what you need to know.

Key takeaways

• AI tokens are the basic data units that AI models process. They can include words, punctuation, pixels, audio snippets, etc.
• Tokens are also the units that determine costs and usage limits for AI services.
• Unnecessary words in requests add to the cost of AI services. Longer responses also cost more.
• Some simple tips can help you use fewer tokens and save money on your AI usage.

What is an AI token?

AI tokens are the basic data units that AI models process. Tokens can include words and punctuation within text strings, pixels in an image, or audio snippets.

The process of parsing input data into tokens for further processing is called tokenization. Tokens are also a “currency”—a unit of measure that determine costs and usage limits for AI services.

Perhaps the easiest way to think about tokens is that they’re the pieces your text is broken into so the AI can understand it.

They’re akin to words, but not exactly:

• Sometimes a token is a whole word.
• Sometimes a token is just part of a word.
• Even spaces and punctuation can be tokens.

For example:

• The sentence “I love AI.” → could be four tokens: [“I”, “love”, “AI”, “.”]
• “Artificial Intelligence is amazing.” → could be five or more tokens, depending on how the API parses it.

A rule of thumb for text in English is that one token is approximately four characters or 75% of a word. Thus 75 English words (about a paragraph) would yield approximately 100 tokens.

Languages other than English often break down into a higher token-to-character ratio, which can make them more expensive to work with.

The AI doesn’t “read” input text the way a human would. Instead of processing the original words and punctuation, it breaks the text into smaller chunks (tokens) and works with those. The AI then generates a response as a token sequence, which it then converts back to human-understandable text.

Why are AI tokens important for businesses that use AI?

Breaking text into tokens is what allows an AI model to analyze the relationship among the units, from which it generates human-like text output.

Every request you send to an AI API is measured in tokens—both the text you send in and the text it sends back. Tokens are how the API calculates:

• Cost
• Response speed
• Usage limits (most APIs have a maximum number of input tokens plus output tokens per request)

If you’ve ever hit an error like “context length exceeded,” you’ve sent too many tokens in one go.

How do extra words add to the cost of AI services?

Tokens aren’t free. Every “please,” “thank you,” or unnecessary sentence increases the total token count. While being polite may help you with humans, AI doesn’t care. It needs efficiency.

For example:

• Prompt 1: “Please, can you kindly write me a short, if possible, summary of this text? Thank you.” → That could be 20 tokens.
• Prompt 2: “Summarize this text in 3 sentences.” → That is around eight tokens.

That difference may seem small, but those extra words add up in real dollars over thousands of API calls. If you’re running a production app, removing fluff can cut costs by 10–30% without affecting quality of results.

What are input tokens versus output tokens?

Most AI systems will bill you for two types of tokens:

• Input tokens. This is the text you send to the AI (your prompt plus any extra context).
• Output tokens. This is the text the AI generates and sends back.

For example, if your prompt is 100 tokens long and the AI responds with 200 tokens, you’ll be billed for 300 tokens total. Table 1 below illustrates real-world token costs for an API that charges $0.002 per 1,000 tokens.

Notice how both prompt and response length affect the total, and how extra fluff can multiply your cost.

Tips to use fewer tokens (and save money)

Tokens are the currency of AI APIs. They’re just chunks of text, but every chunk costs you something to process. Here are some tips to use fewer tokens and thus save money:

• Skip “please,” “thank you” and similar pleasantries unless absolutely necessary for tone.
• Avoid sending full histories. Keep a short summary of previous chats instead of resending everything.
• Set output limits. For example, where possible ask the AI for “a short summary” instead of “a detailed, multi-paragraph essay.”
• Preprocess data. If you’re feeding large documents, strip unnecessary sections before sending them.
• If using an AI solution for coding, avoid unnecessary whitespace and comments. Minify or compact code before sending it to the AI. Extra blank lines, tabs, and verbose comments all count as tokens and increase costs.

Knowing how tokens work can help you:

• Predict your usage
• Avoid surprise bills
• Optimize performance

Treat tokens like a mobile data plan: use less, monitor your usage, and you’ll save money without compromising your results.

What’s next?

CBIZ Pivot Point Security provides AI governance and advisory services to help organizations establish clear and defined parameters concerning the use of AI. We work closely with your team to evaluate the effectiveness of controls, verify alignment with evolving regulations, and implement AI governance systems and strategies.

Contact us to connect with an expert on how we can help your business realize AI benefits while proactively addressing AI’s unique risks.