Water heaters have a small number of failure modes, and they divide cleanly into cheap repairs and the end of the appliance.
The one that is not a repair
A leaking tank. Water appearing from the body of the heater rather than from a fitting means the steel has rusted through.
There is no repair. Welding, sealants and internal coatings are not options on a glass-lined domestic tank.
The cheap repairs
Electric heating element. Inexpensive, and a common failure. A heater running on one element gives roughly half the recovery and about half the usable hot water, which is exactly the "we started running out" complaint.
Electric thermostat. Similar cost, similar symptom.
Thermocouple or flame sensor on a gas heater — the usual cause of a pilot that will not stay lit.
Gas control valve. More expensive, and worth doing below about eight years.
Relief valve. Cheap, and the cause needs investigating: excessive pressure or temperature rather than a bad valve.
Drain valve. Cheap, and worth upgrading to brass while it is being done.
Dip tube. A broken one lets cold water mix straight into the outlet, producing lukewarm water from a healthy heater.
The diagnosis worth doing first
Several distinct faults produce the same complaint of not enough hot water:
A failed element, on electric.
Heavy sediment, on either.
A thermostat out of calibration.
A broken dip tube.
A crossover — a failed mixing valve or shower cartridge somewhere in the house letting cold into the hot line.
An undersized heater that was never adequate.
Each has a different remedy and only the last one argues for replacement. Testing an element takes five minutes with a meter, and it is worth doing before anything is bought.
Where age decides
Under six years: repair almost anything short of the tank.
Six to ten: repair the cheap items; think hard about a gas valve.
Over ten: any repair beyond a cheap component is money spent on an appliance approaching the end of its life, particularly if the anode has never been changed.
Over twelve, in a location where a leak would do damage: replacement is the reasonable choice even without a fault.
Where replacing early is worth it
An attic, an upper floor or above a finished space, where a failure means a ceiling.
Where a heat pump unit would fit and incentives are available, which changes the running cost by a factor of three.
Where the heater was always undersized, since a replacement is the moment to size it properly from a first hour rating.
Planned versus emergency
A tank that fails is replaced the same day with whatever is on the truck, at the call-out rate, with no time for a considered choice or an incentive claim.
A planned replacement gets the right size, the efficient option, the rebate, and a pan and automatic shutoff fitted while the space is open.
For a heater over ten in an awkward location, the difference between those two outcomes is the whole argument.
Before deciding
Find the serial number, which encodes the manufacturing date on most brands, and check whether the warranty is still current.
A tank failing inside its warranty period is a free or discounted replacement, and that is discovered on the label — often after the old unit has already left on the truck.
Doing the cheap repairs yourself
Elements and thermostats on an electric heater are within reach of a competent homeowner: the power is switched off at the breaker, an access panel comes off, and the parts are inexpensive and widely stocked.
The essential rules are that the power must be off before the panel is opened — those terminals are live — and that an electric heater must never be energised with the tank empty, which destroys the elements immediately.
Gas controls and venting are a different matter and belong to a licensed installer in most jurisdictions.
What a plumber should tell you
Which component failed and how it was determined — a resistance reading on an element, a temperature measurement, a pressure reading.
A diagnosis backed by a measurement can be compared against a second opinion. One that arrives as a recommendation to replace the whole heater, with no reading attached, is worth a second call before spending the money.