So I just got an epic backpack for the hermit, and now my best formation actually has a hole in it:

http://tinypic.com/m/ivd09g/3

this lets the hermit get all of the formation dependent DPS bonuses, and still use his own Crazyness

If you don't have a lot of items, you have to take advantage of damage multipliers that are available. Keep in mind the build below is only superior to other formations once you start to reach level 400 or so on Jim the Lumberjack. Until then, the other crusaders are going to be stronger. It also does not have gold income bonus, so if you are trying to farm gold, you should replace Natalie and Nate with Gold Panda and Detective Kaine.

Your goal, is to buff everyone in your 2nd column for the arrow formation (the one that is organized as such: 4 back, 3, 2, 1 in front). In the back column, you should include The Princess (40% damage), Artaxes the Lion (65% damage to column in front), Nate Dragon (20% damage), and Merci the Mad Wizard (15% damage). Nate Dragon is more expensive than King Reginald IV who gives the same 20%, but Nate Dragon provides an additional 150% base to Natalie Dragon, who is one of the core damage dealers.

In your 3rd column have Sasha the Fierce Warrior (40% damage to column behind you) and Khouri, the Witch Doctor (35% to all adjacent).

In front, you want to have The Washed Up Hermit in order to take advantage of his damage bonus from having nothing in front of him.

In the second column is where you want to have your heavy damage mercenaries. The three that worked for me are Jim the Lumberjack (50% boost to column), Natalie Dragon (15% to all), and Sarah the Collector (she just happened to be my highest 3rd highest damage due to items, but you can replace her with whoever your 3rd highest damage dealer is).

This setup will give your entire column at least a 245% damage buff and 280% to the two that benefit from the Witch Doctor's buff.