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Why AI companies charge by 'tokens' — and what that actually means
💡 Tokens are ~0.75 words. They determine both cost and how much context an AI can process. Precision saves money.
When you use ChatGPT or Claude, you're charged per token — not per word. But what is a token?
A token is a chunk of text, typically 3-4 characters. "Hello world" is 2 tokens. "Antidisestablishmentarianism" is 6 tokens. Spaces and punctuation are tokens too. On average, 1 token ≈ 0.75 English words, or about 1,000 tokens per 750 words.
Why does this matter? Because tokens directly determine cost and context window. Claude's context window (how much text it can "see" at once) is measured in tokens. A 200K token window means roughly 150,000 words — about 2-3 novels worth of text in a single conversation.
Pro tip: shorter, more precise prompts save money. And structured output (JSON) is more token-efficient than verbose natural language.