Most homes have heaters with storage tanks holding 40-80 gallons of hot water and the size should be determined based on providing enough hot water for the busiest part of the day.

Gas systems are more efficient than electric.  The efficiency of a water heater is noted by its energy factor (EF), a rating provided by the manufacturer. Since 2004 federal regulations require that electric heaters have a minimum EF of 0.90-0.93, and gas heaters have a EF of 0.56 to 0.61 but you should specify an EF of 63 or better (up to 67).  High efficiency water heaters are not as readily available as moderate and low efficiency units, and may cost a bit more, but they can pay for themselves through energy cost savings in about 3 years and usually last up to 20 years, substantially longer than the customary 10-year life span of a typical hot water heater. Smaller tanks are generally more efficient because they have less surface area exposed to the air through which heat can escape. 

You may wonder why gas heaters are considered more efficient if they have a lower EF than electric heaters.  The reason is that electricity is a very expensive way to produce heat and the heat produced is only as clean and efficient as the fuel that is burned to produce the electricity, usually coal; it may be possible, however, to purchase electricity generated by renewable sources from your utility, worth looking into if gas water heaters is not an option for you.  Check that your gas heater has en electric pilot.

To ensure that your household air does not get contaminated by the combustion of fuel-burning water heaters, and to maximize efficiency, install them with a form of sealed combustion ("direct-vented" or "power-vented), which means that outside air, not room air, is brought directly to the water heater, and exhaust gases are vented directly to the outside.

Check the Gama Association of Appliance & Equipment Manufacturers website to find water heaters by EF and tank size.