Mastering AI Costs: The Executive’s Guide to Prompt Caching

Executives must be vigilant in controlling AI costs. Credit: Gatot Adriansyah

As artificial intelligence rapidly evolves, particularly with the advent of agentic AI, executives are facing a new challenge: managing the seemingly low but ultimately significant costs associated with AI deployment. While AI costs, often measured in millions of tokens, can appear deceptively low initially, the bills can quickly escalate. This is especially true as agentic AI iterates, repeatedly paying for the same inputs with each action, leading to cost inefficiency.

However, there’s a powerful strategy emerging to combat these iterative costs: prompt or context caching. By understanding and strategically employing caching, organizations can significantly reduce their AI expenditure and maintain a competitive edge.

Understanding Prompt Caching: Explicit vs. Implicit

Major AI platforms, such as Google Gemini, OpenAI GPT, and Anthropic Claude, all support caching, generally adhering to two distinct types: explicit caching and implicit caching.

Explicit Caching: The Legacy Option

• How it Works: Explicit caching is declarative through the API. This means you explicitly tell the system to cache specific prompts.
• Benefits: It can offer significant cost savings for…