This study presents a proposed configuration of an innovative residential Solar Water Heater (SWH) system that will meet the hot water requirement and achieve a lower payback period in Saudi Arabia. Different SWH configurations were evaluated in terms of collector type, circulation method, heat exchanging mechanism and hot water storage. Also; the effect of SWH variable parameters on its thermal performance were determined. The variable parameters included collector tilt and orientation angles, albedo ratio, circulation flow rate, tank size, heat exchanger effectiveness and customer hot water supply temperature. The study covered five different cities, which represent different climate conditions. Proper optimization of SWH system configuration resulted in 30% reduction in the system payback period, which is about 4.3 years. Better economic figures can be expected for the installation of SWH systems in commercial and industrial sectors.