What Are Tokens in AI? A Complete Guide to Understanding AI API Pricing

Quick Answer: Tokens are the basic units AI models use to process text. One token ≈ 4 characters or ¾ of a word in English. A 1,000-word article uses ~1,333 tokens. Understanding tokens is essential because AI API pricing is entirely based on token count — and the difference between efficient and wasteful token usage can mean 3-5x cost variation. Tokens Explained Simply When you send text to an AI model like GPT-5 or Claude, the model doesn't read words — it reads tokens . Tokenization breaks text into subword pieces that the model can process. Quick conversion rules: 1 token ≈ 4 characters in English 1 token ≈ ¾ of a word 100 tokens ≈ 75 words 1,000 tokens ≈ 750 words ≈ 1-2 pages Example: The sentence "Hello, how are you today?" breaks into 7 tokens: ["Hello", ",", " how", " are", " you", " today", "?"] Token Count by Content Type Content Approximate Tokens Approximate Cost (GPT-5.2) A tweet (280 chars) ~70 tokens $0.0007 An email (500 words) ~667 tokens $0.007 A blog post (2,000 word