diff --git a/README.md b/README.md
index 8dfdca2..1279761 100644
--- a/README.md
+++ b/README.md
@@ -3,9 +3,9 @@
 [![serverless](http://public.serverless.com/badges/v3.svg)](http://www.serverless.com)
 [![CircleCI](https://circleci.com/gh/elastic-coders/serverless-webpack.svg?style=shield)](https://circleci.com/gh/elastic-coders/serverless-webpack)
 
-A Serverless v1.0 plugin to build your lambda functions with [Webpack](https://webpack.github.io). 
+A Serverless v1.0 plugin to build your lambda functions with [Webpack](https://webpack.github.io).
 
-This plugin is for you if you want to use the latest Javascript version with [Babel](https://babeljs.io/); 
+This plugin is for you if you want to use the latest Javascript version with [Babel](https://babeljs.io/);
 use custom [resource loaders](https://webpack.github.io/docs/loaders.html);
 try your lambda functions locally and much more!
 
@@ -67,26 +67,46 @@ module.exports = {
 
 By default, the plugin will try to bundle all dependencies. However, you don't
 want to include all modules in some cases such as selectively import, excluding
-builtin package (aws-sdk) and handling webpack-incompatible modules. In this case,
-you add all the modules, you want to exclude from bundled files, into `externals` field
-of your `webpack.config.js` and add those, you want to include in final distribution,
-into `serverless.yml`:
+builtin package (ie: `aws-sdk`) and handling webpack-incompatible modules.
 
-```javascript
+In this case you might add external modules in
+[Webpack `externals` configuration](https://webpack.github.io/docs/configuration.html#externals).
+Those modules can be included in the Serverless bundle with the `webpackIncludeModules`
+option in `serverless.yml`:
+
+```js
 // webpack.config.js
-{
-  externals: ["module1", "module2"] // modules to be excluded from bundled file
+var nodeExternals = require('webpack-node-externals')
+
+modules.export = {
+  // we use webpack-node-externals to excludes all node deps.
+  // You can manually set the externals too.
+  externals: [nodeExternals()],
 }
 ```
 
+```yaml
+# serverless.yml
+custom:
+  webpackIncludeModules: true # enable auto-packing of external modules
+```
+
+All modules stated in `externals` will be excluded from bundled files. If an excluded module
+is stated as `dependencies` in `package.json`, it will be packed into the Serverless
+artifact under the `node_modules` directory.
+
+By default, the plugin will use the `package.json` file in working directory, If you want to
+use a different package conf, set `packagePath` to your custom package.json. eg:
+
 ```yaml
 # serverless.yml
 custom:
   webpackIncludeModules:
-    - module1        # modules to be included in distribution
+    packagePath: '../package.json' # relative path to custom package.json file.
 ```
+> Note that only relative path is supported at the moment.
 
-You can find an example setup in the [`examples`](./examples) folder.
+You can find an example setups in the [`examples`](./examples) folder.
 
 ## Usage
 
@@ -112,7 +132,7 @@ Options are:
 
 - `--port` or `-p` (optional) The local server port. Defaults to `8000`
 
-The `serve` command will automatically look for the local `serverless.yml` and serve 
+The `serve` command will automatically look for the local `serverless.yml` and serve
 all the `http` events. For example this configuration will generate a GET enpoint:
 
 ```yaml
diff --git a/examples/include-external-npm-packages/package.json b/examples/include-external-npm-packages/package.json
index b13ee30..8601b2f 100644
--- a/examples/include-external-npm-packages/package.json
+++ b/examples/include-external-npm-packages/package.json
@@ -10,10 +10,11 @@
   "license": "MIT",
   "devDependencies": {
     "serverless-webpack": "^1.0.0-beta.2",
-    "webpack": "^1.13.1"
+    "webpack": "^1.13.1",
+    "webpack-node-externals": "^1.3.3",
+    "aws-sdk": "^2.5.3" // packages in devDependencies won't be included in distribution
   },
-  "dependencies": {
-    "aws-sdk": "^2.5.3",
+  "dependencies": { // packages in dependencies will be included in distribution if required
     "fbgraph": "^1.3.0"
   }
 }
diff --git a/examples/include-external-npm-packages/serverless.yml b/examples/include-external-npm-packages/serverless.yml
index d27dd6a..5cfa396 100644
--- a/examples/include-external-npm-packages/serverless.yml
+++ b/examples/include-external-npm-packages/serverless.yml
@@ -9,8 +9,7 @@ provider:
   runtime: nodejs4.3
 
 custom:
-  webpackIncludeModules:  # modules to be included in distribution
-    - fbgraph   
+  webpackIncludeModules: true # enable auto including modules
 
 functions:
   first:
diff --git a/examples/include-external-npm-packages/webpack.config.js b/examples/include-external-npm-packages/webpack.config.js
index 846684e..02f1fed 100644
--- a/examples/include-external-npm-packages/webpack.config.js
+++ b/examples/include-external-npm-packages/webpack.config.js
@@ -1,7 +1,7 @@
-var path = require('path');
+var nodeExternals = require('webpack-node-externals');
 
 module.exports = {
   entry: './handler.js',
   target: 'node',
-  externals: ["fbgraph", "aws-sdk"] // modules to be excluded from bundled file
+  externals: [nodeExternals()] // exclude external modules
 };
diff --git a/index.js b/index.js
index 73160b6..bdb70fd 100644
--- a/index.js
+++ b/index.js
@@ -7,7 +7,7 @@ const compile = require('./lib/compile');
 const cleanup = require('./lib/cleanup');
 const run = require('./lib/run');
 const serve = require('./lib/serve');
-const packExternalModules = require('./lib/packExternalModules')
+const packExternalModules = require('./lib/packExternalModules');
 
 class ServerlessWebpack {
   constructor(serverless, options) {
@@ -30,7 +30,6 @@ class ServerlessWebpack {
         lifecycleEvents: [
           'validate',
           'compile',
-          'packExternalModules',
         ],
         options: {
           out: {
@@ -102,9 +101,7 @@ class ServerlessWebpack {
         .then(this.validate),
 
       'webpack:compile': () => BbPromise.bind(this)
-        .then(this.compile),
-
-      'webpack:packExternalModules': () => BbPromise.bind(this)
+        .then(this.compile)
         .then(this.packExternalModules),
 
       'webpack:invoke:invoke': () => BbPromise.bind(this)
diff --git a/lib/compile.js b/lib/compile.js
index ccee537..259c125 100644
--- a/lib/compile.js
+++ b/lib/compile.js
@@ -12,6 +12,7 @@ module.exports = {
     return BbPromise
       .fromCallback(cb => compiler.run(cb))
       .then(stats => {
+
         this.serverless.cli.consoleLog(stats.toString({
           colors: true,
           hash: false,
diff --git a/lib/packExternalModules.js b/lib/packExternalModules.js
index 0e8e9c0..3843051 100644
--- a/lib/packExternalModules.js
+++ b/lib/packExternalModules.js
@@ -5,38 +5,111 @@ const fs = require('fs');
 const path = require('path');
 const npm = require('npm-programmatic');
 
+function getProdModules(externalModules, packagePath) {
+
+  const packageJson = require(path.join(process.cwd(), packagePath));
+
+  const prodModules = [];
+
+  // only process the module stated in dependencies section
+  if (!packageJson.dependencies) {
+    return []
+  }
+
+  externalModules.forEach(module => {
+
+    const moduleVersion = packageJson.dependencies[module];
+
+    if (moduleVersion) {
+      prodModules.push(`${module}@${moduleVersion}`);
+    }
+  });
+
+  return prodModules;
+}
+
+function getExternalModuleName(module) {
+
+  const path = /^external "(.*)"$/.exec(module.identifier())[1];
+
+
+  const pathComponents = path.split('/');
+
+  const main = pathComponents[0];
+
+  // this is a package within a namespace
+  if (main.charAt(0) == '@') {
+    return `${main}/${pathComponents[1]}`
+  }
+
+  return main
+}
+
+function isExternalModule(module) {
+  return module.identifier().indexOf('external ') === 0;
+}
+
+function getExternalModules(stats) {
+
+  const externals = new Set();
+
+  stats.compilation.chunks.forEach(function(chunk) {
+    // Explore each module within the chunk (built inputs):
+    chunk.modules.forEach(function(module) {
+      // Explore each source file path that was included into the module:
+      if (isExternalModule(module)) {
+        externals.add(getExternalModuleName(module));
+      }
+    });
+  });
+
+  return Array.from(externals);
+}
+
 module.exports = {
-  packExternalModules() {
+  packExternalModules(stats) {
 
     const includes = (
-        this.serverless.service.custom &&
-        this.serverless.service.custom.webpackIncludeModules
+      this.serverless.service.custom &&
+      this.serverless.service.custom.webpackIncludeModules
     );
 
     return BbPromise.resolve().then(() => {
-        if (!includes || includes.length === 0) {
-            return;
-        }
-       
-        this.serverless.cli.log('Packing external modules: ' + includes.join(","));
 
-        const tmpPackageJson = path.join(this.serverless.config.servicePath, 'package.json'); 
+      if (!includes) {
+        return;
+      }
+
+      const packagePath = includes.packagePath || './package.json';
+
+      const externalModules = getExternalModules(stats);
+
+      // this plugin will only install modules stated in dependencies section of package.json
+      const prodModules = getProdModules(externalModules, packagePath);
+
+      if (prodModules.length === 0) {
+        return;
+      }
+
+      this.serverless.cli.log('Packing external modules: ' + prodModules.join(", "));
+
+      const tmpPackageJson = path.join(this.serverless.config.servicePath, 'package.json');
     
-        // create a temp package.json in dist directory so that we can install the dependencies later.
-        fs.writeFileSync(tmpPackageJson, "{}");
-
-        return new BbPromise((resolve, reject) => {
-            npm.install(includes, {
-                cwd: this.serverless.config.servicePath,
-                save: false
-            }).then(() => {
-                fs.unlink(tmpPackageJson);
-                resolve()
-            }).catch(e => {
-                fs.unlink(tmpPackageJson);
-                reject(e);
-            })
+      // create a temp package.json in dist directory so that we can install the dependencies later.
+      fs.writeFileSync(tmpPackageJson, "{}");
+
+      return new BbPromise((resolve, reject) => {
+        npm.install(prodModules, {
+          cwd: this.serverless.config.servicePath,
+          save: true
+        }).then(() => {
+          // fs.unlink(tmpPackageJson);
+          resolve()
+        }).catch(e => {
+          // fs.unlink(tmpPackageJson);
+          reject(e);
         })
-    })
-  },
+      })
+    });
+  }
 };