A no-nonsense guide to understand LLM expenses.
Bhavishya Pandit
Introduction
Why do LLMs cost so much?
With so much noise about DeepSeek saving ~ 42.5% in training process in comparison
to GPT-4, it’s important to understand the underlying factors driving LLM costs.
These costs aren’t just about the price of the model itself, they are influenced by
compute resources, energy consumption, and data storage, among other factors.
In this post, you’ll explore: Factors influencing
LLM pricing
Calculating cost, cost-
Overview
cutting methods
DeepSeek’s cost
effective model
Bhavishya Pandit
Why Estimating Cost Matter?
The cost of developing and running an LLM is a crucial factor in AI adoption. Whether
you’re a researcher, a startup, or an enterprise, knowing the financial implications
helps in budgeting, resource allocation, and long-term sustainability.
Development
costs
Infrastructure
costs
Operational
costs
Energy
consumption
LLM costs aren't just about training the model once, they involve:
Development costs – Data collection, model training, and fine-tuning.
Infrastructure costs – Hardware (GPUs, TPUs, cloud servers).
Operational costs – Deployment, inference (running the model), and maintenance.
Energy consumption – Electricity costs for running high-performance computing
setups.
Bhavishya Pandit
Why LLMs Are Expensive?
Training state-of-the-art LLMs often require thousands of GPUs running for weeks or
months, this is just the tip of the iceberg. Let’s understand in detail:
Model size & architecture
Compute resources
Training time & energy costs
Inference & deployment costs
Data volume & quality
Bigger Models = Bigger Costs: Large models like LLaMA-2 (65B parameters) need
thousands of GPUs running for weeks. More parameters mean more computing power
and energy.
Expensive GPUs & Compute power: Training needs specialized GPUs, which are costly to
buy and rent. Cloud services add flexibility but come with high fees, on-premise setups
require big upfront investments.
Long Training Time = High energy costs: Training LLMs takes weeks to months,
consuming massive amounts of electricity making AI training a costly operation.
Inference & Deployment keep costs high: Even after training, running LLMs is expensive.
Some large models cost $700k+ per day in energy cost.
More Data = More Processing costs: High-quality data improves performance but is
expensive to collect and clean. Synthetic data is cheaper but risks errors and biases.
Bhavishya Pandit
Estimating Development Cost
1.Data Collection & Storage Cost:
(Data Licensing Fees+Storage Costs)×Data Size (TB)
2. Training Time & Energy Cost:
Power Consumption per GPU×Total GPUs×Training hours×Electricity Rate
3. Inference & Deployment Cost:
Inference Cost=Cost per Query×Number of Users×Queries per Day
4. Fine-Tuning & Maintenance Cost:
Fine-Tuning cost=Training compute cost+New data acquisition+Human labeling cost
5. Engineering & Development Cost:
Cost of manpower=Number of Engineers×Avg Annual Salary×Development Duration
(Years)
Bhavishya Pandit
DeepSeek Model: A Cost
Effective Alternative
DeepSeek has emerged as a cost-effective alternative, offering efficient performance
through innovative design and training methodologies.
Efficient model architecture: DeepSeek employs a Mixture-of-Experts architecture,
activating only a subset of its 236 billion parameters per token, which reduces
computational load and energy consumption.
Optimized training process: By utilizing Multi-head Latent Attention (MLA) and the
DeepSeekMoE framework, DeepSeek achieves significant saving of ~ 42.5% .
Reduced inference costs: It leads to a 93.3% reduction in Key-Value cache size & boosts
generation throughput by 5.76 times, resulting in lower expenses during deployment.
High-Quality data utilization: DeepSeek is pre-trained on a diverse corpus of 8.1 trillion
tokens, ensuring thorough language understanding.
Open-Source accessibility: Its allows for community collaboration, contrasting with
proprietary models that often come with high licensing fees.
Source
Bhavishya Pandit
Benefits of Cost Cutting
Increased accessibility for Lower training &
Small enterprises infrastructure costs
Scalability & long-term
Faster time to market
efficiency
Increased accessibility for Small enterprises: Cost-effective LLMs enable startups and
smaller businesses to access advanced AI capabilities in a sustainable manner.
Lower training & infrastructure costs: By optimizing training time & compute, cost-
effective models drastically reduce the upfront, operational expenses.
Faster time to market: With shorter training cycles and lower resource requirements,
cost-efficient LLMs help companies launch AI-driven products faster.
Scalability & long-term efficiency :Cost-effective LLMs are easier to scale and maintain,
offering long-term cost savings while adapting to growing business needs.
Bhavishya Pandit
Follow to stay updated on
Generative AI
LIKE COMMENT REPOST
Bhavishya Pandit
