Numerical modelling of impact cratering has reached a high degree of sophistication; however, the treatment of porous materials still poses a large problem in hydrocode calculations. We present a novel approach for dealing with porous compaction in numerical modelling of impact crater formation. In contrast to previous attempts (e.g., P-alpha model, snowplow model), our model accounts for the collapse of pore space by assuming that the compaction function depends upon volumetric strain rather than pressure. Our new epsilon-alpha model requires only four input parameters and each has a physical meaning. The model is simple and intuitive and shows good agreement with a wide variety of experimental data, ranging from static compaction tests to highly dynamic impact experiments. Our major objective in developing the model is to investigate the effect of porosity and internal friction on transient crater formation. We present preliminary numerical model results that suggest that both porosity and internal friction play an important role in limiting crater growth over a large range in gravity-scaled source size.