Google adsense - basic formula

AdSense revenue is based on a very simple formula you aught to know by heart :

Revenue = Traffic x click Through Rate x Average Revenue per click

This is also called The AdSense Business Model.

Revenue
This is the result of the formula, the amount of money you earn.

Traffic
In this context, traffic is the number of times a google ad is displayed on your website for the considered period of time. If your pages are seen 10.000 times during a month, your traffic is then 10.000 provided you place adsense ads on all your pages. To get 10.000 page impressions a month you can, for example, have 5.000 visitors viewing an average 2 pages per visitor or 8.000 visitors viewing 1,25 pages per visitor...

Please note that google can also show "public service" ads that are not taken into account which will reduce you traffic.

Click Through Rate (CTR)
CTR is how many clicks you get out of 1 (one) page impression. It is generally close to 1% or 2%. A CTR of 3% means that a traffic of 10.000 resulted in 300 clicks.
CTR indicates how well the ads are doing, of course the higher the better but do not dream of a 30% CTR!

Average Revenue per click
As the phrase indicates, this is the amount of money Google pays you (in average) for every click. It can be 5 cents, 20 cents or many dollars.
The process that determines the revenue per click is complexe and will be discussed in upcoming articles.

From: http://adsense4money.com/AdSense/adsense-basic-formula.php