restoring iphone after updating to ios 7.0.4

I just updated my iphone to IOS 7.0.4 and am having trouble restoring from itunes backup. When I click on the restore backup button, it seems to work momentarily, until I get a message stating "could not restore iphone because not enough space is available on the iphone." How do I proceed from here, without having to restore to factory settings? I appreciate any suggestions, thanks!