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LLMs, GenAI, RAG, agents, evaluation · insight-1650draft — in review

Compare self-hosting with an API on total cost at expected utilisation, including the people who run it

Evidence type
practitioner heuristic
Difficulty
medium
Roles
ML engineer, Applied AI, Data scientist
Industries
healthcare, energy

Summary: situation, action, reason, boundary

  1. Situation

    A team sees the per-token price of a hosted model and a GPU rental price and proposes to self-host an open-weight model to save money.

  2. Action

    Compute break-even monthly tokens from GPU cost at planned utilisation plus a share of engineering and on-call time, against the hosted price at the same quality tier. Price privacy needs separately; recheck as volume grows.

  3. Reason

    A fixed monthly cost only beats a per-token price above a threshold volume, and that threshold rises with every cost you omit and with every percentage point of idle capacity.

  4. Boundary

    Build-versus-buy decisions for model serving, guardrails and evaluation tooling.

Symptom or risk

Idle capacity, on-call load and upgrades make self-hosting costlier and less reliable than the API at real volumes.

Exceptions

Data-residency or air-gap requirements that rule out the API regardless of price.

Trade-offs

The API choice adds vendor dependency and deprecation schedules; self-hosting adds operations burden.

Pitfalls

Comparing peak throughput with the API price, or assuming equal quality without the eval set.

Example

Hypothetical: a GPU node at 2,920amonthplus202,920 a month plus 20% of a 15,000-a-month engineer is 5,920.At5,920. At 1 per million hosted tokens, break-even is 5.92 billion tokens a month, before idle capacity.

Lessons and concepts