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Solar energy is a promising solution to meet the demand for electricity services of rural households in remote locations in developing countries. The economics of the solar home system are determined by the initial costs of designing and installing the system. A study and analysis was made to find out any possibility to reduce the cost of a solar home system. It was specially focused on reducing the battery size as it depends on the charge storing capacity of battery. The lead-acid battery which is the most expensive part of a solar home system, covers about 40% of the total costs. So a Solar Home System was designed and set up in the laboratory for analysis. Using Data Logger, the currents and voltages of the panel, battery and load were measured. Temperature meter and irradiance sensor were installed. After analyzing these data throughout the year, it was found that energy input to the system is more than required. However during a few days like cloudy, rainy and foggy the loadshould be used carefully. Thus a Solar Home System can be made cost efficient.