Circular economy requires rethinking the foundations of business strategy and innovating the business model to incorporate sustainability‐driven capabilities. Value propositions rooted in product‐service system (PSS) holds promise for leading manufacturing companies to circularity. However, an integrated and practical approach crafting circular and service‐based value propositions (herein called as circular PSS) is currently lacking. This study presents a novel method that integrates the domains of circular economy and PSS to enhance the effectiveness of designing circular PSS value propositions in a BMI context. The research methodology is based on three main phases unfolded in empirical research studies, systematic analysis of process models, and expert evaluations. This study consolidates the guiding principles and requirements for effective design of circular PSS value propositions. The pivotal result is a method providing a common and integrated approach to guide how to design value propositions that simultaneously integrate circular strategies and PSS features.