LLM Fundamentals
A token is the basic unit of text AI processes—approximately 0.75 words or 4 characters. Tokens determine both AI pricing (cost per token) and context limits (how much AI can "remember").
AI doesn't read text the way humans do. Instead of processing individual letters or words, it breaks text into "tokens"—chunks that typically represent parts of words, whole words, or common phrases. This tokenization process is how AI manages and understands language.
Think of tokens as the currency of AI. You "spend" tokens when you write prompts, and the AI "spends" tokens when it responds. Understanding tokens helps you write more efficient prompts and estimate costs when using AI APIs.
Example sentence tokenized:
The beautiful 3 -bed room home features hard wood floors
10 tokens for 9 words (note: "3-bedroom" and "hardwood" split into multiple tokens)
100
words
≈
75
tokens
1
page of text
≈
500
tokens
1
average email
≈
150
tokens
AI APIs charge per token. Both input (your prompt) and output (AI response) cost money.
Example pricing (GPT-4):
Each AI has a maximum context window—the total tokens it can process in one conversation.
Context windows:
For most agents using ChatGPT Plus, Claude Pro, or similar subscriptions, token limits rarely become a concern for normal use. However, understanding tokens helps you:
Concise prompts leave more room for AI responses. Instead of rambling instructions, be specific and direct.
Long conversations consume tokens. As you approach context limits, AI may "forget" earlier instructions. Start fresh conversations for best results.
Building AI tools for your team? Understanding tokens helps budget API costs. A 500-word listing description costs about $0.03-0.05 to generate.
The maximum tokens AI can process in one conversation.
AI Acceleration ConceptsWhat happens when conversations consume too many tokens.
LLM FundamentalsThe AI technology that processes tokens.
LLM FundamentalsThe input text that consumes tokens.
Understand tokens, context windows, and other AI fundamentals in The Architect workshop—practical knowledge for effective AI use.
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