Your system prompt is 4,000 tokens. Your RAG context is 20,000 tokens. You send both with every request. You also pay for both — every time. Prompt caching lets the provider keep that prefix warm on their side and bill you 10% of the normal rate on reuse. Used correctly, it cuts inference cost by 50–90% and first-token latency by 40–85%.
A coding agent sends the same 15,000-token system prompt to Claude on every turn of a conversation. Twenty turns at $3/M input tokens is $0.90 in input cost alone — before any of the user's actual messages. Multiply by 10,000 daily conversations and the bill hits $9,000/day for text that never changes.
You cannot shrink the prompt without hurting quality. You cannot avoid sending it — the model needs it on every turn. The only move is to stop paying full price for a prefix the provider has already seen.
That move is prompt caching. Anthropic shipped it in August 2024 (with a 1-hour extended-TTL variant in 2025), OpenAI automated it later that year, Google shipped explicit context caching alongside Gemini 1.5, and all three now offer it as a first-class feature on their frontier models.
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