Embodiments are directed to a virtual disk block consolidation process and system component that uses certain merging techniques to optimize the amount of disk space used by the incremental backup operations. The process merges the differencing disk at each user snapshot together so that a single backup copy is maintained. This helps reduce the space required to store the backups. A saveset consolidation is then performed so that the differencing disk representing the incremental backups are merged to a single backup that may represent either a synthetic full backup or a virtual full backup.