The steps are as follows:
From the guest VM, download Disk2vhd
Execute it and make a VHD image. Make sure that the make .vhdx option is disabled
Go back to the host system, download and install WinImage
In WinImage select Disk » Convert Virtual Hard Disk image
Select source and check the Create a dynamically sized disc image specially for Windows virtual machines. Select destination
Create the Virtual Machine again or just replace the old .vmdk file
(Optional) On the guest system, look for the disk management tool and reduce the available partition size as much as possible so it'll never be filled