In your specific example, everything was done correctly; you just needed to eliminate a portion of the enemy forces, but you were unlucky with the left demon hero. He's too weak. However, if you started with Vittorio, the first upgrade you should get is Developed Battle Machines. In the town, build a forge and buy a tent. After that, you can play almost without any losses. Considering the low initiative of level 1-3 knights, the tent is practically the only way to save money at the start in battles against archers and casters. And on the Contested Island, Vittorio is definitely a good choice for the main hero.