Following the steps John Williams said is the standard way to go, however, you may sometimes experience some crashes especially in very heavy files that are packed with effects. In such cases, your method is more solid so just try a few other converters to reduce the file size. There are a lot out there.
We do this very often as well. We render avi files like you are already doing and then use Bigasoft converters to reduce the file size down. We are not affiliated with Bigasoft in anyway but we have found that we can easily reduce down a 500-600mb video to 50mb or less without significant loss in quality. You just need to tweak the settings until you find a quality/file size that works for you and then make a preset out of them because there are a lot of setting you can adjust.
Hope this helps!
Fedias Hadjixenofontos
Digireal Studios