With the quest for enhancing competitive position, fulfilling customer and sustainability demands, increasing profitability, asset manufacturing companies are now adapting assets towards product service systems (PSS) offered through performance contracts. Despite several benefits, the shift to performance PSS exposes industrial asset manufacturers' to performance challenges and risks. Currently, PSS designers face a challenge to exhaustively identify potential failures during PSS development. Knowledge of Product failures is critical prior to the engineering of PSS. This paper proposes a failure modes and effects analysis (FMEA) method to support designers' prioritise critical failures in performance PSS development. A case study of an optical sorting machine is used to demonstrate the method's application.