What matters when choosing the right size water heater for your home is the number of people in your household and the peak hot water demand at the busiest hot water usage time of the day. It also matters if you're sizing a traditional tank water heater or tankless system. To size a traditional tank water heater, you need to determine the amount of hot water you need during the time of peak hot water usage each day. To size a tankless unit, you'll need to add up how many gallons per minute (GPM) of hot water you need your heater to produce at your peak hot water usage time.